Appendix — New York Mercantile Exchange v. Leist

Nos. 80-757, 80-895, 80-986 | spp 9 ga

IN THE

Supreme Court of the United States

Ocroser Term, 1980

New York Mercantite Excuance, Ricwarp B, Levine,

Howarp Gasier and AuLrrep Pennist,

Petitioners,

Vv.

New Letst, Pip Smiru and Incomco,

Respondents,

Crayton Brokerace Co, or Sr, Louis, Ine.,

Petitioner,

V.

New Leist, Pais Smiru and Incomco,

Respondents,

Heinotp Commopities, Inc. and THomson & McKinnon

AvcuincLoss Kouumeyer Inc.,

Petitioners,

v.

New Leist, Paiie Smitu and Ixcomco,

Respondents,

Hernotp Commopirixs, Inc. and Tuomson & McKinnon

Avcuinc Loss Kouumeyer Ine.,

Petitioners,

Vv.

Nationa Super Spups, Inc., et al.,

Respondents.

ON WRITS OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

JOINT APPENDIX

(List of counsel on inside cover)

PETITIONS FOR CERTIORARI FILED NOVEMBER 11,

DECEMBER 4 AND DECEMBER 5, 1980

CERTIORARI GRANTED FEBRUARY 23, 1981

TABLE OF CONTENTS

List of Relevant Docket Entries

Bn Se I ooh csavechsequmconmnntnnene

Re

Be I TIS, asics teciccacacsonsaccicncrtenacunsosee

Complaint in Incomco v. New York Mercantile Ex-

change, et al., 76 Civ. 2648 (LF'M), filed June 16,

MIDE cicscuic-scnsinsnsaduisn cessnenonssaa tnaichaesesasieuganbiancenah eines

Complaint in Neil Leist, et al. v. Simplot, et al., 76

Civ. 4350 (LF'M), filed September 30, 1976 ..........

First Amended Consolidated Class Action Com-

plaint in National Super Spuds, et al. v. New

York Mercantile Exchange, et al., 76 Civ. 2357

(LFM), 76 Civ. 2554 (LFM), 76 Civ. 2571

(LFM), 76 Civ. 2596 (LFM), filed October 4,

RARE x SARSR ACES PORNO RN IMC ee aie Seo ROR ATR

Opinion of the United States District Court for the

Southern District of New York, dated May 29,

Be Re I da redississcsinicnstsvmnemsnmenienagsiianinios

Judgment of the United States District Court for

the Southern District of New York, dated July 3,

1979 seaterssaasasdatpveicasatacs cuctuiaiscineh cuits

Opinion of the United States Court of Appeals for

the Second Circuit, dated July 8, 1980 (Majority

Opinion and Dissent) (Slip Opinion) ....................

PAGE

il

PAGE

Judgment of the Court of Appeals, dated July 8,

ITED insccunscstadilesdshcuihaaslhaaitaiilenimnesantaaonsaeeceeaacaamalaae JA 250

Order of the Court of Appeals dated September 9,

1980 denying Petition for Rehearing filed by ap-

pellees New York Mercantile Exchange, Richard

B. Levine, Howard Gabler and Alfred Pennisi .... JA 252

Order of the Court of Appeals dated September 9,

1980 denying Petition for Rehearing filed by

appellee Heinold Commodities, Ine. ...................... JA 255

Order of the Court of Appeals dated September 9,

1980 denying Petition for Rehearing filed by ap-

pellee Clayton Brokerage Co. of St. Louis, Ine. .. JA 257

Order of the Court of Appeals dated September 9,

1980 denying Petition for Rehearing with a sug-

gestion for rehearing in bane filed by appellees

New York Mercantile Exchange, Richard B.

Levine, Howard Gabler and Alfred Pennisi ........ JA 259

Order of the Court of Appeals dated September 9,

1980 denying Petition for Rehearing with a sug-

gestion for rehearing en banc filed by appellee

Heinold Commodities, Ime. ............0...ccccccccceseeeeeeeeee JA 262

Order of the Court of Appeals dated September 9,

1980 denying Petition for Rehearing with a sug-

gestion for rehearing en bane filed by appellee

Clayton Brokerage Co. of St. Louis, Ine, ............ JA 264

JAl

List of Relevant Docket Entries

In toe Unirep Srates Distrricr Court ror

THE SouTHERN District or New York:

Leist, et al. v. Simplot, et al., 76 Civ. 4350 (LFM)

Sept. 30, 1976 Complaint filed and summons issued.

Nov. 16, 1976* Answer of defendant Heinold Commod-

ities, Ine. (“Heinold”) filed.

Dec. 1, 1976 Answer of defendant Thomson & MeKin-

non Auchincloss Kohlmeyer Inc. (“Thom-

son”)t

Dec. 2, 1976 Answer of defendants New York Mercan-

tile Exchange, Richard B. Levine (“e-

vine”), Howard Gabler (“Gabler”) and

Alfred Pennisi (“Pennisi’”)+

Dec. 3, 1976 Answer of defendant Clayton Brokerage

Co. of St. Louis, Inc. (“Clayton”) filed.

* During the period from November 1, 1976 to April 14, 1977,

the answers to the following defendants, who are not parties to

the pending appeal, were served: John Richard Simplot; J. R.

Simplot & Co,; Simplot Industries, Inc.; Simtag Farms, Ine.;

Peter J. Taggares; P. J. Taggares & Co.; Henry A. Pollak; Harvey

B. Pollak; Harvey B. Pollak Company; Pressner Trading Corp.;

Benjamin Pressner; Stephen Sundheimer; Jules Nordlicht; Edel-

stein & Co., Ine.; Charles Edelstein; Robert Edelstein: Muriel

Edelstein; S. Meierfeld, Inc.; Gilbert Meierfeld; David Meierfeld;

Robert Reardon; F. J. Reardon, Inc.; Alex Sinclair; Manning

Stoller; Hornblower, Weeks-Hemphill, Noyes; MFX Commodities,

Ine.; Donald Silver; Duane South; Kenneth Ramm; A&B Farm-

ing, Inc.; Gearheart Farms, Inc.; Edward MeKay; and Frank

Fullmer.

t The items designated by this symbol were filed on August 8,

1979 as part of the Supplemental Record on Appeal. The dates

shown above are those appearing on the documents themselves,

Sept. 29, 1978

Oct.

Dec.

Dec.

Dec.

Dec.

Dec.

Jan.

Feb.

24, 1978

4, 1978

4, 1978

4, 1978

7, 1978

26, 1978

16, 1979

2, 1979

May 7, 1979

JA 2

Defendants New York Mercantile Ex-

change, Levine, Gabler, and Pennisi move

for judgment on the pleadings or for sum-

mary judgment.

Defendant Clayton moves for judgment

on the pleadings or for summary judg-

ment.t

Defendant Heinold moves for summary

judgment.

Piaintiffs’ papers in opposition to motion

of defendants New York Mercantile Ex-

change, Levine, Gabler and Pennisi filed.

Defendant Thomson’s affidavit in support

of motions of defendants Clayton and

Heinoldt

Plaintiffs’ papers in opposition to motion

for defendant Clayton filed.

Plaintiffs’ papers in opposition to mo-

tions of defendants Heinold and Thomson

filed.

Objections of defendants New York Mer-

eantile Exchange, Levine, Gabler, Pen-

nisi, and Heinold to plaintiffs’ input for

pre-trial order filed.

Objections of defendant Clayton to plain-

tiffs’ input for pre-trial order filed.

Objections of defendants Clayton and

Heinold to plaintiffs’ additional and re-

vised input for pre-trial order filed.

May 30, 1979

July

9,

1979

July 20, 1979

Apr.

3,

June 16,

Nov.

Sept.

Dec.

May :

July

July

3,

29,

4,

1981

1976

1976

1978

1978

1979

1979

1979

JA 3

Opinion and Order of the District Court

for the Southern District of New York

filed.

Judgment of the District Court entered.

Plaintiffs’ amended notice of appeal to

the Court of Appeals for the Second Cir-

euit filed.

Plaintiffs’ input for pre-trial order and

plaintiffs’ additional and revised input

for pre-trial order filed.

Incomco v. New York Mercantile Exchange, et al.,

76 Civ. 2648 (LFM)

Complaint filed and summons issued.

Answer and cross-claims of defendant

New York Mercantile Exchange filed.

Defendant New York Mercantile Ex-

change moves for judgment of the plead-

ings or for summary judgment.

Plaintiff’s papers in opposition to motion

of defendant New York Mercantile Ex-

change filed.

Opinion and Order of the District Court

for the Southern District of New York

filed.

Judgment of the District Court entered.

Plaintiffs amended notice of appeal to

the Court of Appeals for the Second Cir-

cuit filed.

JA 4

National Super Spuds, Inc., et al. v. New York Mercantile

Exchange, et al., 76 Civ. 2375 (LFM), 76 Civ. 2554 (LFM),

May

Oct.

Nov.

Nov.

Nov.

Oct.

Dee.

Dee.

Dee.

Jan.

May

July

Aug.

76 Civ

26, 1976

4, 1976

29, 1979

30, 1979

6, 1979

20, 1979

. 2571 (LFM), 76 Civ. 2594 (LFM)

Complaint filed and summons issued,

First amended consolidated class action

complaint filed.

Answer of defendant Clayton filed.

Answer of defendant Heinold filed.

Answer of defendant Thomson filed.

Defendant Clayton moves for judgment

on the pleadings or for summary judg-

ment,

Plaintiffs’ papers in opposition to motion

of defendant Clayton filed.

Defendant Heinold moves for summary

judgment

Defendant Thomson’s affidavit in support

of motions of defendants Clayton and

Heinold filed.

Plaintiffs’ papers in opposition to motion

of defendant Heinold filed.

Opinion and Order of the District Court

for the Southern District of New York

filed.

Judgment of the District Court entered.

Plaintiffs’ amended notice of appeal to

the Court of Appeals for the Second Cir-

cuit filed.

JA 5

In tHe Unrrep Srates Court or APPEALS

FOR THE Seconp Circuit:

Leist, et al. v. Simplot, et al., 79-7402, 79-7464, 79-7482

July

Aug.

Jan.

July

July

July

July

Sept.

Sept.

27, 1979

22, 1980

22, 1980

22, 1980

9, 1980

Appellants New York Mercantile Ex-

change, Levine, Gabier and Pennisi move

for leave to consolidate the appeals from

the three actions identified above,

Order granting leave to consolidate en-

dorsed.

Case argued before Friendly, Mansfield

and Kearse, C.JJ.

Opinion and Dissent of the Court of Ap-

peals for the Second Cireuit filed and

judgment entered,

Petition for Rehearing with a suggestion

for rehearing in bane of appellees New

York Mercantile Exchange, Levine, Gab-

ler and Pennisi filed.

Petition for Rehearing with a suggestion

for rehearing en banc of appellee Heinold

filed.

Petition for Rehearing with a suegestion

for rehearing en bane of appellee Clayton

filed.

Orders of the Court of Appeals denying

Petition for Rehearing with a suggestion

for rehearing in banc of appellees New

York Mercantile Exchange, Levine, Gab-

ler and Pennisi entered.

Orders of the Court of Appeals denying

Petition for Rehearing with a suggestion

for rehearing en bane of appellee Heinold

entered.

Sept.

Nov.

Dee.

Dee.

Feb.

9, 1980

JA 6

Orders of the Court of Appeals denying

Petition for Rehearing with a suggestion

for rehearing en banc of appellee Clayton

entered.

In tar Supreme Court or tHe Unirep Srates:

11, 1980

4, 1980

5, 1980

23, 1980

Petition for certiorari of New York Mer-

eantile Exchange, Levine, Gabler and

Pennisi filed (No, 80-757).

Petition for certiorari of Clayton filed

(No. 80-895).

Petition for certiorari of Heinold and

Thomson filed (No, 80-936),

Petitions for certiorari in 80-757, 80-895

and 80-936 granted and eases consol-

idated.

JA 7

Complaint in

Incomco v. New York Mercantile Exchange, et al.

UNITED STATES DISTRICT COURT

Soutuern District or New York

Incomco, a partnership,

Plaintiff,

—against—

Tue New York Mercantite Excuance, Wayne County

Propuce Co., and Haroip CoL.ins,

Defendants.

CoMPLAINT

Plaintiff, by its attorney, complaining of defendants al-

leges as follows:

Tue Parties

1. The plaintiff Incomco is a partnership engaged in busi-

ness as a licensed futures commission merchant earning its

commissions in the trading of contracts for commodities

and commodity futures for customers. It also trades con-

tracts for commodities and commodity futures in ifs own

account. It has its office and only place of business in the

Southern District of New York.

2. The defendant The New York Mercantile Exchange

(“NYME”) is an exchange constituted and licensed pur-

suant to United States Law (Commodity Exchange Act,

7 U.S.C. § 1 et seq.) as an approved contract market for the

purposes of conducting and regulating trading in various

approved contract markets one of which is potato futures.

JA 8

3. In addition to the regulation of trading the NYME

also promulgates rules on the methods of shipping and

delivery (by railroad in the potato market) attendant there-

to, and also promulgates measures to be taken by it in the

event of a default in delivery.

4. The New York Mercantile Exchange is composed of

an individual who is its President and other individuals

designated as “Members”, a number of whom are further

designated as a “Board of Governors”; the actions of The

New York Mercantile Exchange are formulated and imple-

mented through either its President or its Board of Gov-

ernors or a committee constituted by them.

5. The defendant Wayne County Produce Company

(“Wayne”) is engaged in the potato business as a grower,

exporter, shipper and merchandiser thereof in various geo-

graphic localities, and upon information and belief dealt

with potatoes which were or became subject to trading in

the markets regulated by the NYME.

6. The defendant Harold Coilins (“Collins”) is an indi-

vidual who is the principal of Wayne. Any and all of the

acts complained of against Wayne were the results of Col-

lins’ conduct.

JURISDICTION

7. The NYME on the one hand and Wayne and Collins on

the other, acting separately and also in concert with each

other have violated the Commodity Exchange Act, 7 U.S.C.

1 et seq., thereby raising a federal question.

8. The NYME on the one hand and Wayne and Collins

on the other, acting separately and also in concert with each

JA 9

other have violated the U.S. Anti-Trust Laws, 15 U.S.C.

13 et seq., thereby raising a federal question.

As AND For A First Cause or

Action Acatinst ALL DEFENDANTS

9. Plaintiff was trading certain potato contracts in and

around February and March of 1976 which were due to

expire on March 5, 1976; these potato contracts (the “March

contracts”) of which there were 30 in number, representing

30 railroad cars of potatoes of 50,000 pounds each, are here-

after referred to as “The 30 Lots” or “The 30 Cars”.

10. The 30 March contracts herein had been purchased

by plaintiff as futures and delivery was taken at a price of

$7 per hundredweight. In the terminology used by traders

and the parties hereto, plaintiff then became “long cash

potatoes”. Said potatoes on which delivery was taken were

stored in the warehouse of plaintiff’s agent, in Ft. Fairfield,

Maine.

11. Subsequent thereto and in early May 1976, there were

traders and merchants and brokers and speculators who

were “short” May potato futures and were actively seeking

to purchase potatoes. Again, the terminology of the trade

regarding “shorts” are those who have sold contracts for

potatoes that they did not then own against the expectation

and necessity of buying back those contracts, hopefully at

a lower price than at which they sold their short or by

making actual delivery of the cash article to close out their

short potato contracts.

12. Plaintiff with the expectation of realizing profits on

its 30 lots by selling them those described in paragraph

JA 10

“11” supra, instructed its agent to prepare for delivery of

the 30 lots, which would have premium value because of a

shortage of deliverable grade potatoes.

13. Plaintiff through its agent had in fact agreed to sell

its potatoes to others who needed them to make delivery

against their short positions.

14. In accordance with plaintiff’s instructions its agent

ordered railroad cars on May 3, 1976 from the Bangor and

Aroostook Railroad (“B & A”) to be placed at his ware-

house in Maine for intended May delivery; the B & A is

the only railroad servicing the potato deliveries which are

the subject of this lawsuit.

15. The railroad cars were not forthcoming from B & A

for the reason that they were already loaded with potatoes

for overseas export by Wayne and Collins, who, along with

others, had physically tied up the actual railroad cars by

willfully failing to unload same or only partially unloading

same for the express purpose of blocking the availability

of railroad cars, thereby creating an artificial and manipu-

lative railroad car shortage.

16. Upon information and belief these subject railroad

ears full of potatoes for export were awaiting sea trans-

portation at Sears-Port, Maine; however, at least one ship

which appeared at Sears-Port for the purpose of loading

the said export potatoes was sent away empty and, upon

information and belief few, if any, of the alleged (export)

orders were ever actually loaded aboard ship.

17. Pursuant to its rules and regulations, the NYME has

the right to proclaim an emergency and extend the period

JA 11

for delivery of the contracts that are approved on its mar-

kets, and it has the further right to proclaim an emergency

and allow a delivery by truck rather than by railroad.

18. When plaintiff’s agent learned that the railroad cars

he had ordered from B & A were not forthcoming, he made

immediate and repeated oral demands on the NYME, on

May 10, 11, and 12, 1976, for an extension of time within

which to deliver plaintiff's 30 cars and/or for permission

to deliver the said potatoes by truck.

19. The NYME first orally indicated that it would grant

the oral demands of plaintiff’s agent, but never actually did

so; accordingly plaintiff’s agent immediately made similar

demands in writing on May 12, 13, and 14, 1976, but these

written demands were simply disregarded by the NYME.

20. In addition, to the foregoing, upon information and

belief, defendant Collins was also trading potato contracts

and was actually long potatoes during the relevant period.

At the same time Collins and others further contracted to

buy potatoes from plaintiff and from various growers and

shippers in Maine which he thereafter refused to honor and

has never honored to date.

21. Also, in addition to the foregoing, defendant Wayne

and others had signed contracts for purchase of potatoes

destined for alleged export orders but said export orders

upon information and belief never existed and said con-

tracts were dishonored. Again all in the furtherance of a

deliberate plan and conspiracy to manipulate the potato

market.

JA 12

22. Upon information and belief, several of the members

and governors of the NYME as well as their firms and

customers, were also individually long potato futures.

23. Therefore, it was in the financial interest of all de-

fendants to prevent other longs, such as plaintiff, from

delivering their potatoes and in actually acting to prevent

such delivery, both separately and/or in concert with one

another.

24. By preventing delivery of potatoes by others defen-

dants created a situation in which an improper default was

created in the delivery of potatoes against the May con-

tracts.

25. The conduct of the defendants, as aforesaid, consti-

tuted violations of the Commodity Exchange Act to the

detriment of the plaintiff.

26. As a result of the foregoing, the plaintiff has been

damaged by the defendants in an amount that cannot pres-

ently be calculated, but which is far in excess in the juris-

dictional limitation of this Court.

As AND For A Seconp Cause or

Action Acatnst Ati DerenDANTS

27. Plaintiff repeats all of the allegations of paragraphs

1.24” hereinabove as if fully set forth herein.

28. The conduct of defendants in manipulating and in

conspiring to manipulate prices of the cash potato market

constituted violations of the United States Anti-Trust Laws

to the detriment of the plaintiff.

JA 13

29. As a result of the foregoing, the plaintiff has been

damaged by the defendants in an amount that cannot be

presently calculated, but which is far in excess of the juris-

dictional limits of this Court, and said amount of damages

should be trebled in accordance with the law.

As anD For A Tuirp Cause or

Action Acatnst ALL DEFENDANTS

30. Plaintiff repeats all of the allegations of paragraphs

“97” and “28” hereof as if fully set forth herein.

31. As a result of the foregoing plaintiff should be award-

ed attorney’s fees in accordance with the law and which

may hereafter be set by the Court.

As AND For A Fourtnu Cause or

Action Acainst Derenpant NYME

32. Plaintiff repeats all of the allegations of paragraphs

“1.24” hereinabove as if fully set forth herein.

33, Pursuant to its rules and regulations, when there is

a default in delivery, the President of the NYME or a

broker appointed by him shall be required to buy in the eash

market for the account of the delinquent sellers so that the

outstanding obligations shall he fulfilled.

34, However, in addition to its obstruction of delivery as

aforesaid, defendant NYME also failed to comply with its

own regulations regarding the consequent default in de-

livery.

35. Plaintiff, in reliance ujon said regulations of the

NYME, did not sell its eash } ositions.

JA 14

36. As a result of the foregoing, the plaintiff has been

damaged by defendant NYME in an amount which cannot

be presently calculated but which is far in exeess of the

jurisdictional limit of this Court.

Wuererore, Plaintiff demands judgment as follows:

A. On the first cause of action: Money damages in an

amount to be caleulated by the Court.

B. On the second cause of action: Money damages in an

amount to be calculated by the Court and thereafter trebled.

C. On the third cause of action: The attorney’s fees of

this action that may hereafter be set by this Court.

D. On the fourth cause of action: Money damages in an

amount to be calculated by the Court.

E. The costs and disbursements of this action.

F. Such other and further relief as this Court may deem

to be proper.

Yours, ete.,

Leonarp Tosororr

Attorney for Plaintiff

17 E. 63rd Street

New York, N.Y.

(212) 838-2323

[ Affidavit of service omitted]

JA 15

Complaint in

Neil Leist, et al. v. Simplot, et al.

UNITED STATES DISTRICT COURT

SovrHern District or New York

New, Leist, Pamie Smiru and Incomco,

Plaintiffs,

—against—

Joun Ricnarp Smmprot, J. R. Smmpror & Co., Smmp.or

Propucts Co., Inc., Smuptot Inpustries, Inc., Sura

Farms, Inc., Peter J. Taccares, P. J. Taccares & Co.,

Henry A. Poriax, Harvey B. Pottax, Harvey B. PotiaK

Company, Geratp Rarrerty, Pressner Trapine Corp., Ben-

JAMIN PressNeR, STEPHEN SuNDHEIMER, JULES NoRDLICHT,

Eperstein & Co., Inc., Cuartes Epetsters, Rosert Epev-

stein, Mure. Epersteix, Mererrecp & Company, Ivc., Gr-

pert MererFELD, Davin Meterretp, Rosert Rearvon, F. J.

Rearvon, Inc., Harotp Cotiins, Caspar Mayerson, LYNNE-

woop Exporting Company, Avex Srnciarr, MAnnine

Srotzer, Hornstower, Weeks-Hempuiti, Noyes, CLayton

BroxeraceE Co., Inc., Heryotp Com Mopities, INc., THomMson

& McKinnon Avcuincioss Koutmeyer Inc., MEX Com-

mopities, Inc., Donatp Sitver, Duane Sours, Kenneta

Ramm, A & B Farmiye, Inc., HucH Gienn, GEARHEART

Farmine, Inc., Epwaro McKay, New York Mercantice

Excnance, Ricuarp B, Levine, Howarp Gasier, ALFRED

Pennist, “Jonn” Humpureys, Frank FuLLMer,

Defendants,

JA 16

CoMPLAINT

Puatntirrs DeMANpD A Jury Tria.

Plaintiffs, by their attorneys, Batton, Srotu & Irzier,

for their complaint allege:

1. Jurisdiction of this Court is invoked by virtue of the

provisions of the Commodity Exchange Act, 7 U.S.C.

§¢ 1-13, the Sherman Anti-Trust Act, 15 U.S.C. §§1 and 2,

the Clayton Anti-Trust Act, 15 U.S.C. §15, 28 U.S.C.

§§ 1331, 1337 and the doctrine of pendent jurisdiction.

Parties

A. Plaintiffs:

2. Plaintiif Neil Leist is a duly licensed member of the

New York Mercantile Exchange (the “Exchange”) engaged

in the business of trading commodities and futures con-

tracts for his own account.

3. Plaintiff Incomco, a partnership, is a duly licensed

futures commissions merchant.

4, Plaintiff Philip Smith is a principal and the managing

partner of Incomco.

B. Defendants:

5. Defendant John Richard Simplot is a resident of the

State of Idaho and is a principal shareholder, officer and

controlling person of defendants J.R. Simplot and Co.,

Simplot Products Co., Inc., Simplot Industries, Inc., and

Simtag Farms, Ine.

JA 17

6. J.R. Simplot and Co., is a Nevada Corporation with

its principal place of business in Boise, Idaho. Simplot

Products Co., Ine. is a corporation with its principal place

of business in Caldwell, Idaho. Simplot Industries, Ine. is a

corporation with its principal place of business in Cald-

well, Idaho. Simtag Farm, Inc. is a corporation with its

principal place of business in the State of Washington. All

of the foregoing corporations are hereinafter referred to as

the “Simplot Corporations”. The Simplot Corporations are

engaged in the business of processing potatoes and potato

products throughout the United States.

7. Peter J. Taggares is a resident of the State of Wash-

ington and is principal controlling person of defendant P.J.

Taggares Co,

8. P.J. Taggares Co. is a sole proprietorship with its

principal place of business in Othello, Washington and is

engaged in the business of processing potatoes and potato

products throughout the United States.

9. Henry A. Pollak is a resident of the State of New

York and is a partner in Harvey B. Pollak Company.

10. Harvey B. Pollak is a resident of the State of New

York and is a partner of Harvey B. Pollak Company. Har-

vey B. Pollak at all times relevant hereto was engaged as a

Commission Agent for defendant Clayton Brokerage Co.,

Ine.

11. Harvey B. Pollak Company is engaged in the busi-

ness of acting as a broker in the sale of commodities and

commodity futures. Its business is operated by Henry A.

Pollak and Harvey B. Pollak.

JA 18

12. Gerald Rafferty is a resident of the State of New

York and is engaged in the business of trading commodity

futures.

13. Pressner Trading Corp. is a New York corporation

with its principal place of business in New York, New York

and is engaged in the business of acting as a broker in the

sale of commodities and commodity futures. It is a clearing

member of the Exchange and is registered with the Com-

modity Futures Trading Commission (the “Commission”).

14. Benjamin Pressner is a resident of the State of New

York and is the principal stockholder, officer and control-

ling person of Pressner Trading Corp.

15. Stephen Sundheimer is a resident of the State of

New York and is engaged in the business of trading com-

modity futures and is an officer of Pressner Trading Corp.

16. Jules Nordlicht is a resident of the State of New

York and is engaged in the business of trading commodity

futures and is an officer of Pressner Trading Corp.

17. Edelstein & Co., Inc. is a New York corporation with

its principal offices at 6 Harrison Street, New York, New

York and is engaged in the business as a broker in the sale

of commodities and commodity futures. It is a clearing

member of the Exchange and is registered with the Com-

mission.

18. Charles Edelstein is a resident of the State of New

York and is a principal officer, stockholder and controlling

person of Edelstein & Co., Ine.

JA 19

19. Robert Edelstein is a resident of the State of New

York and is a principal officer, stockholder and controlling

person of Edelstein & Co., Inc.

20. Muriel Edelstein is a resident of the State of New

York and is a principal officer, stockholder and controlling

person of Edelstein & Co., Inc.

21. Meierfeld & Company, Inc. is a New York corpora-

tion with its principal place of business in New York, New

York and is engaged in business as a broker for the sale of

commodities and commodity futures. It is a clearing mem-

ber of the Exchange and is registered with the Commission.

22. Gilbert Meierfeld is a resident of the State of New

York and is a principal officer, stockholder and controlling

person of Meierfeld & Company, Inc.

23. David Meierfeld is a resident of the State of New

York and is a principal officer, stockholder and controlling

person of Meierfeld & Company, Inc.

24. F. J. Reardon, Ine, is a New York corporation with

its principal place of business in New York, New York and

is engaged in business as a broker in the sale of commod-

ities and commodity futures. It is a clearing member of the

Exchange and is registered with the Commission.

25. Robert Reardon is a resident of the State of Massa-

chusetts and is a principal officer, stockholder and con-

trolling person of F. J. Reardon, Ince.

26. Harold Collins is a resident of the State of Maine and

is engaged in business &s a trader in potato futures, and as

a potato merchant.

JA 20

27. Caspar Mayerson is a resident of the State of Maine

and is engaged in business as a potato merchant and futures

trader.

28. Lynnewood Exporting Company is a partnership or

unincorporated association with its principal place of busi-

ness in the State of New York and was engaged in the busi-

ness of exporting potatoes and buying and selling potato

futures.

29. Alex Sinclair is a resident of the State of Idaho and

is engaged in business as a potato merchant and futures

trader.

30. Manning Stoller is a resident of the State of Massa-

chusetts and is engaged in business as sales representative.

31. Hornblower, Weeks-Hemphill, Noyes, is a Delaware

corporation with its principal offices at 8 Hanover Street,

New York, New York and is engaged in business among

other things, as a broker in connection with the sale of

commodities and commodity futures. It is a clearing mem-

ber of the Exchange and is registered with the Commission.

32. Clayton Brokerage Co., Inc. is a Missouri corporation

with its principal place of business at St. Louis, Missouri

and is engaged in business as a broker in connection with

the sale of commodities and commodity futures. It is a

clearing member of the Exchange and is registered with

the Commission.

33. Heinold Commodities, Inc. is a New York corporation

with its principal place of business at 74 Pearl Street, New

York, New York and is engaged in business as a broker in

JA 21

connection with the sale of commodities and commodity

futures, It is a clearing member of the Exchange and is

registered with the Commission.

34. Thomson & McKinnon Auchincloss Kohlmeyer Ine.

is a Delaware corporation with its principal place of busi-

ness at 1 New York Plaza, New York, New York, and is

engaged in business as a broker in connection with the sale

of commodities and commodity futures. It is a clearing

member of the Exchange and is registered with the Com-

mission.

35. MFX Commodities, Inc. is a foreign corporation with

its principal place of business in Maine and is engaged in

business as a commodity futures commission merchant.

36. Donald Silver is a resident of the State of Maine and

is engaged in business as a commodity futures trader and

salesman and officer of MF X Commodities, Inc.

37. Duane South is a resident of the State of Idaho and

is engaged in business as a commodity trader.

38. Kenneth Ramm is a resident of the State of Washing-

ton and is engaged in business as a potato merchant.

39. A & B Farming, Inc. is a foreign corporation with its

principal place of business in Washington State and is

engaged in business as a potato trader and merchant.

40. Hugh Glenn is a resident of the State of Washington

and is a principal officer, stockholder and controlling per-

son of A & B Farming, Inc.

JA 22

41. Gearheart Farming, Inc. is a Washington corpora-

tion with its principal place of business in the State of

Washington and is engaged in business as a potato grower

and merchant.

42. Edward McKay is a resident of the State of Wash-

ington and is a principal officer, stockholder and controlling

person of Gearheart Farming, Ine.

43. The Exchange is a New York corporation with its

principal place of business in New York City and is a desig-

nated contract market pursuant to Section 7 of the Com-

modity Exchange Act.

44, Richard B. Levine is a resident of the State of New

York and is President of the Exchange.

45. Howard Gabler is a resident of the State of New

York and is Vice-President of the Exchange.

46. Alfred Pennisi is a resident of the State of New York

and is Compliance Officer of the Exchange.

47. “John” Humphreys is a resident of the State of Idaho

and is engaged in the business as a salesman for Clayton

Brokerage Co.

48. Frank Fullmer is a resident of the State of Idaho and

is engaged in business as an officer and employee of J.R.

Simplot & Co.

C. Background:

49. Maine potatoes are a “commodity” as that term is

defined in the Commeuity Exchange Act, 7 U.S.C. §1 et

JA 23

seq. (the “Act”) traded and shipped in interstate com-

merce as are contracts for the future delivery of Maine

potatoes, Such contracts are regularly bought and sold in

interstate commerce and on the Exchange subject to the

Act and the charter, by-laws and rules of the Exchange.

50. A purchaser or seller of potato futures in effect,

enters into a contract to either buy or sell potatoes on a

fixed delivery date at an agreed upon purchase price. The

future contracts are bought and sold at prices which vary

in accordance with many factors including the availability

of the commodity, weather conditions, ete. Generally the

full purchase price on a contract is not payable until the

conclusion of trading on the date of delivery but a margin

or cash deposit of approximately 10% is required at the

time of purchase.

51. Potato futures contracts are standardized, each con-

tract requiring delivery of 50,000 pounds of a specified

quality of Maine potatoes at a predetermined location. The

contract quantity is approximately that which is required

to fill a railear and is generally referred to as a carload.

Prices are quoted in dollars per C.W.T. or cents per pound,

52. Delivery under futures contracts for potatoes are

also standardized. The potatoes are deliverable in certain

months during the year. The potato futures involved in this

action required delivery in March, April and May, 1976 and

are referred to herein as the Maine Futures.

53. Trading in Maine Futures commenced on or about

Febrvary 18, 1975 with the March futures expiring March

5, 1976, the April futures on April 7, 1976 and the May

futures on May 7, 1976. Actual delivery or acceptance of

JA 24

delivery for May Maine Futures pursuant to such contracts

was required to take place between May 7, 1976 and May

25, 1976. In lieu of making delivery, short sales and long

sales could be offset against each other by buying or selling

futures on or before the last trading day.

54. Simplot and the Simplot Companies are responsible

for the processing of approximately 50% of all Idaho

potato products processed and sold in the United States.

55. Taggares and P. J. Taggares & Co. are responsible

for the processing of approximately 30% of all Washington

potato products processed and sold in the United States.

56. In connection with their activities, Simplot, the Sim-

plot Companies, Taggares and P. J. Taggares & Co., are

the largest purchasers of potatoes throughout Washington,

Idaho and Oregon. By virtue of their position in the potato

processing field and the quantity of potatoes purchased by

them, defendants Simplot, the Simplot Companies, Tag-

gares and P. J. Taggares & Co. would be in a position to

control] the prices paid for potatoes but for the existence

of the Exchange and the activity of merchants, farmers,

processors, brokers and traders in buying and selling potato

futures contracts. The existence of the Exchange provides

an auction market for potatoes and potato futures which

thereby determines fair prices.

57. During the period of January through May 1976

various of the defendants and particularly Simplot, the

Simplot Companies, Taggares and P. J. Taggares Co. made

short sales of substantial quantities of potato futures.

JA 25

As AND For A First Cram Acatnst DEFENDANTS JOHN

Ricuwarp Smptort, J. R. Siupior & Co., Peter J. Taa-

cares, P. J. Taccares Co., Henry A. Potiak, Harvey

B. Potiax, Harvey B. Potuak Company, Pressner

Trapinc Corp., BENJAMIN Pressner, STEPHEN Sunp-

HEIMER, JuLES Norpuicut, Epristerixn & Co., Inc.,

Cartes Epetstern, Mererretp & Company, Inc., Gtt-

BERT MEIERFELD, Davin Meterrety, F. J. Rearpon, Inc.,

Rosert Rearvon, Haroup Coins, Caspar Mayerson,

LynNewoop Exrortinc Company, ALEx Stxciam, Eman-

VEL Sto.tuerR, Hornstower, Weeks-Hempuiy, Noyes,

Cuayton Brokerace Co., Inc., Heryoitp Commopittes,

Inc., Toomson & McKinnon Avucurncioss Kon uMeEYer

Inc., MFX Commnoprttrs, Inc., Donatp Sriver, Duane

Soutn, Kennetu Ramm, A & B Farmriye, Inc., Huan

Guenn, GearHeart I .rminc, Inc., Epwarn McKay,

“JoHn” Humpureys, Frank FviuMer.

58. From on or about December 1, 1975 up to and includ-

ing June 30, 1976 in the Southern District of New York and

elsewhere, the defendants John Richard Simplot, J. R.

Simplot & Co., Peter J. Taggares, P. J. Taggares Co.,

Henry A. Pollak, Harvey B. Pollak, Harvey B. Pollak

Company, Pressner Trading Corp., Benjamin Pressner,

Stephen Sundheimer, Jules Nordlicht, Edelstein & Co., Inc.,

Charles Edelstein, Meierfeld & Company, Inc., Gilbert

Meierfeld, David Meierfeld, «. J. Reardon, Inc., Robert

Reardon, Harold Collins, Caspar Mayerson, Lynnewood

Exporting Company, Alex Sinclair, Emanuel Stoller, Horn-

blower, Weeks-Hemphill, Noyes, Clayton Brokerage Co.,

Ine., Heinold Commodities, Inc., Thomson & MeKinnon

Auchincloss Kohlmeyer Inc.. MFX Commodities, Inc.,

Donald Silver, Duane South, Kenneth Ramm, A & B Farm-

ing, Inc., Hugh Glenn, Gearheart Farming, Inc., Edward

JA 26

McKay, “John” Humphreys, Frank Fullmer and others to

the plaintiffs presently unknown did unlawfully, willfully,

knowingly and maliciously combine, conspire, confederate

and agree, together and with each other to commit viola-

tions of Federal law, to wit violations of Title 7 U.S.C.

§§ 1 through 13.

59. It was part of said conspiracy that the above named

defendants and their co-conspirators would unlawfully,

willfully, and knowingly and maliciously in connection with

the purchase and sale of Maine Futures by the use of means

and instruments of transportation and communication in

interstate commerce and by the use of the mails, directly

and indirectly, employed devices, schemes and artifices to

defraud and engaged in transactions, practices and courses

of business which would and did operate as a fraud and

deceit upon purchasers and sellers of Maine Futures.

60. It was further a part of said conspiracy that the de-

fendants and their co-conspirators unlawfully, willfully,

knowingly and maliciously, in connection with the purchase

and sale of Maine Futures, directly and indirectly, by the

use of means and instrumentalities of interstate commerce

and the mails, used and employed manipulative devices and

contrivances in violation of Title 7 U.S.C. §13 and Rules

promulgated by the Commission.

61. It was further a part of the conspiracy that in order

to reduce or eliminate any losses on their short sales, de-

fendants conspired to and did manipulate the market price

of Maine Futures for the purpose of creating an artificially

low price for such Maine Futures.

JA 27

62. Among the means by which defendants carried out

the conspiracy were the following:

(a) Defendants Simplot, Taggares and their co-con-

spirators sold short and caused to be sold short Maine

Futures despite their knowledge that there were in-

sufficient quantities of such potatoes available to sat-

isfy their contracts and despite their knowledge of the

fact that there were insufficient railroad cars available

to make delivery of the potatoes even if they were

successful in purchasing such potatoes.

(b) In order to protect their short positions in

Maine Futures by depressing the price of potatoes

defendants and their co-conspirators shipped unsold

Idaho potatoes to the market in large quantities for

immediate sale and transferred or caused to be trans-

ferred carloads of potatoes from market to market and

offered them for immediate sale at the going eash price,

at a time when there were no buyers available.

(c) Although they knew that there were insufficient

Maine potatoes available to fill their short sales and

that there were insufficient ears available to deliver the

potatoes which were required to satisfy their obliga-

tions under their short contracts, defendants failed and

refused to enter liquidating orders for approximately

1911 Maine Futures contracts,

(d) Defendants Simplot and Taggares and their co-

conspirators refused to offset any of their short sales

of Maine Futures against existing long contracts for

Maine Futures as a result of which, since they were

unable to make delivery of potatoes under their con-

tracts, they defaulted or caused defaults under con-

JA 28

tracts involving at least 1911 carloads of Maine

potatoes.

(e) Defendants Simplot and Taggares and their co-

conspirators failed to report or caused the brokers who

handled their short sales of Maine Futures to fail to

report to the Commission violations of the Act, the

Rules and Regulations of the Commission, and the By-

Laws, Rules and Regulations of the Exchange and con-

cealed or caused to be concealed such violations from

the Commission.

(f) Defendants Simplot, Taggares, Reardon and

their co-conspirators sold or caused to be sold Maine

Futures in concert with each other at times and for

prices which were prearranged to have the maximum

impact on the market.

(g) The defendant brokers failed and neglected to

enter liquidating orders for Maine Futures on or be-

fore May 7, 1976 with respect to accounts which main-

tained short positions even though they knew that such

short positions could not be covered and that there

would be a default if the accounts were not closed out.

(h) Defendant brokers permitted the short sales of

Maine Futures to be made and cooperated in making

such short sales although they knew or should have

known that the sellers did not intend to and would be

unable to cover such short positions.

63. As a result of the foregoing, the price of Maine

Futures was artificially lowered, resulting in damages to

the plaintiff Philip Smith in the amount of $400,000, to the

plaintiff Incomeo in the amount of $400,000, and to the

plaintiff Neil Leist in the amount of $500,000.

JA 29

As AND For A Seconp Ciaim Acatnst DereNDANTS JOHN

Ricuarp Simptot, J. R. Stmprot & Co., Peter J. Tac-

cares, P. J. Taccares Co., Henry A. Pouiak, Harvey

B. Potnax, Harvey B. Potnak Company, Pressner

Trapinc Corp., Benzamin Pressner, STEPHEN SunpD-

HEIMER, JuLES Norpuicut, Epersteixn & Co., Inc.,

Cuartes Epetstern, Mererretp & Company, Inc., Gr-

BERT MererFeLp, Davin Meterrecn, F’, J. Rearvon, Inc.,

Rosert Rearpon, Harotp Coiiins, Caspar Mayerson,

Avex Srvciar, Emanvet Sroiier, Hornsiower,

Weexks-Hempuitt, Noyes, Cuaytron Brokerace Co.,

Inc., Heryotp Commopitirs, INc., Toomson & McKry-

won Avcuincitoss Kontmeyer Inc., MFX Commop-

ites, Inc., DonaLtp Sitver, Duane Sourn, Kenneru

Ramo, A & B Farmine, Inc., HucH Guenn, Gearnearr

Farmine, Inc., Eowarp McKay, “Joun” Humpnreys,

Frank Fuutetmer.

64. From on or about December 1, 1975 up to and in-

cluding June 30, 1976, in the Southern District of New

York and elsewhere the defendants John Richard Simplot,

J. R. Simplot & Co., Peter J. Taggares, P. J. Taggares Co.,

Henry A. Pollak, Harvey B. Pollak, Harvey B. Pollak Com-

pany, Pressner Trading Corp., Benjamin Pressner, Stephen

Sundheimer, Jules Nordlicht, Edelstein & Co., Inc., Charles

Edelstein, Meierfeld & Company, Inc., Gilbert Meierfeld,

David Meierfeld, F. J. Reardon, Inc., Robert Reardon,

Harold Collins, Caspar Mayerson, Alex Sinclair, Emanuel

Stoller, Hornblower, Weeks-Hemphill, Noyes, Clayton

Brokerage Co., Ine., Heinold Commodities, Ine., Thomson

& McKinnon Auchincloss Kohlmeyer Ine., MFX Com-

modities, Inc., Donald Silver, Duane South, Kenneth Ramm,

A & B Farming, Inc., Hugh Glenn, Gearheart Farming,

Inc., Edward McKay, “John” Humphreys, Frank Fullmer

JA 30

and others to the plaintiffs presently unknown, did unlaw-

fully, willfully, knowingly and maliciously combine, con-

spire, confederate and agree together and with each other

to commit violations of Federal Law to wit violations of

Title 15 U.S.C. §§1 and 2.

65. It was part of said conspiracy that the above named

defendants and their co-conspirators would unlawfully,

willfully, knowingly and maliciously in connection with the

purchase and sale of May Futures and Maine potatoes

agree to and take steps to restrain trade and commerce

among the several states and with foreign nations.

66. It was further a part of said conspiracy that the

above named defendants and their co-conspirators would

unlawfully, willfully, knowingly and maliciously monopolize

and attempt to monopolize trade and commerce in May

Futures and Maine potatoes among the several states and

with foreign nations.

67. It was further a part of said conspiracy that the

defendants and their co-conspirators unlawfully, willfully,

knowingly and maliciously would seek to destroy the Ex-

change as a factor in the trading of future contracts for the

purchase of potatoes in the future and thereby to eliminate

all competition in the marketplace for the purchase and

sale of potatoes, thereby providing for the defendants and

their co-conspirators a monopoly position in connection

with the acquisition of potatoes,

68. Among the means by which defendants carried out

the conspiracy were the following:

(a) Defendants Simplot, Taggares and _ their , co-

conspirators sold short and caused to be sold short

JA 31

May Futures despite their knowledge that there were

insufficient quantities of such potatoes available to

satisfy their contracts and despite their knowledge of

the fact that there were insufficient railroad ears avail-

able to make delivery of the potatoes even if they were

successful in purchasing such potatoes.

(b) Defendants Simplot, Taggares and their co-

conspirators, in order to depress the cash market price

of potatoes in New York, shipped unsold Idaho pota-

toes to the market in large quantities for immediate

sale.

(c) Defendants Simplot, Taggares and their co-

conspirators transferred or caused to be transferred

from market to market and offered for immediate sale

at the going cash price, carloads of potatoes at a time

when there were no buyers available.

(d) Although they knew that there were insufficient

Maine potatoes available to fill their short sales and

that there were insufficient cars available to deliver the

potatoes which were required to satisfy their obliga-

tions under their short contracts, defendants Simplot,

Taggares and their co-conspirators failed and refused

to enter liquidating orders for a total of 1911 Maine

Futures contracts.

(e) Defendants refused to set their short sales of

May Futures against existing long contracts for May

Futures as a result of which, since they were unable

to make delivery of potatoes under their contracts,

they defaulted or caused defaults under contracts in-

volving at least 1911 carloads of Maine potatoes.

(f) Defendants failed to report or caused the

brokers who handled their short sales of Maine Futures

JA 32

to fail to report to the Commission violations of the

Act, the Rules and Regulations of the Commission, and

the By-Laws, Rules and Regulations of the Exchange

and concealed or caused to be concealed such violations

from the Commission,

(g) The defendant brokers failed and neglected to

enter liquidating orders for Maine Futures on or be-

fore May 7, 1976 with respect to accounts which main-

tained short positions even though they knew that such

short positions could not be covered and that there —

would be a default if the accounts were not closed out.

(h) Defendant brokers permitted the short sales of

Maine Futures to be made and cooperated in making

such short sales although they knew or should have

known that the sellers did not intend to and would be

unable to cover such short positions,

69, As a result of the foregoing acts of the defendants

and their co-conspirators plaintiffs have sustained substan-

tial damages and are entitled to recover three-fold the dam-

ages sustained by them together with the costs of this

action including a reasonable attorney’s fee,

As aANp ror A Tromp CLaim Acarnst Derenpants Ropert

Rearvon, F. J. Rearvon, Inc., Harotp Cours, Caspar

Mayerson, Lynnewoop Exprortina Company, ALEx

Srxcuair, Mannine Srotier and Hornstower, Weexs-

Hempniw, Noyes.

70. Plaintiffs repeat and reallege each and every allega-

tion contained in paragraphs 58 through 62, and 64 through

68.

JA 33

‘.

71. Defendants with knowledge of the existence of the

conspiracies alleged above for purposes of personally pro-

fiting from the existence of the conspiracy simultaneously

with their participation in the aforementioned conspiracy

entered into a conspiracy of their own to commit violations

of federal law, to wit violations of Title 7, United States

Code §§ 1 through 13. Such conspiracy occurred within the

Southern District of New York and elsewhere during the

period December 1, 1975 through June 30, 1976,

72. It was part of said conspiracy that simultaneously

with participating with and assisting the co-conspirators

named in the First and Second Causes of Action herein in

the short sale of Maine Futures, defendants would purchase

or cause to be purchased potatoes and Maine Future for

the purpose of creating an artificially high price in the

market. It was further a part of said conspiracy that de-

fendants would purchase or cause to be purchased, potatoes

and Maine Futures although they did not have sufficient

resources to meet their contract obligations.

73. It was further a part of such conspiracy that the

brokers for whom such purchases were made would permit

the purchases to be made on credit with full knowledge that

defendants who were making the purchases or their agents

did not have the resources to meet their obligations.

74. The acts of defendants were done willfully, knowingly

and maliciously.

75. As a result of the foregoing acts of the defendants,

plaintiffs have sustained damages in excess of $400,000,

JA 34

As AnD ror A Fourrn Cuaim Acainst Derenpants New

York Mercantize Excuance, Ricuarp B. Levine,

Howarp Gasver and Autrrep Pewnist.

76. Plaintiff repeats and realleges each and every allega-

tion contained in paragraphs 58 through 62, 64 through 68.

77. Defendant Exchange was required by law to regulate

activities of brokers and traders in the trading of com-

modities on the New York Mercantile Exchange and specif-

ically, trading in Maine Futures.

78. The activities of the defendant Exchange were the

responsibility of the defendants Levine, Gabler and Pennisi

as the President, Vice President and Compliance Officer

respectively of the Exchange.

79. Defendants Exchange and Levine, Gabler and Pen-

nisi negligently failed to maintain an orderly market for

trading in Maine Futures in violation of the duties imposed

upon them under tke provisions of the Act.

80. Defendant Exchange and Levine, Gabler and Pennisi

failed and neglected to report violations of the Act and the

Rules and Regulations of the Commission and the By-Laws,

Rules and Regulations of the Exchange.

81. Defendant Exchange and Levine, Gabler and Pennisi

failed and neglected to direct the entry of liquidating

orders for the Maine Futures which had been sold short for

the accounts of members with net short positions, on or

before May 7, 1976 although they knew or should have

known that the sellers of Maine Futures would not and

could not make delivery under their agreement.

JA 35

82. The defendant Exchange and the defendants Levine,

Gabler and Pennisi failed and neglected to exercise due

care in policing activities of traders and brokers in con-

nection with the purchase and sale of Maine Futures and

thereby failed to prevent the manipulative practices by the

various other defendants named in this complaint and their

co-conspirators.

83. As a result of the foregoing, plaintiffs have each been

injured and have sustained damages in excess of $400,000.

Wuenrerore, it is respectfully requested that plaintiffs

have judgment as follows:

On the First Claim

To the plaintiff Leist in the amount of $500,000 together

with punitive damages, interest according to law and the

costs of the action.

To the plaintiff Smith in the amount of $400,000 together

with punitive damages, with interest according to law and

the costs of this action.

To the plaintiff Incomeo in the amount of $00,000 [sic]

together with punitive damages, with interest according to

law and the costs of this action.

On the Second Claim

To the plaintiff Leist in the amount of $1,500,000 together

with interest according to law, reasonable attorneys fees

and the costs of this action.

To the plaintiff Smith in the amount of $1,200,000 to-

gether with interest according to law, reasonable attorneys

fees and the costs of this action.

To the plaintiff Incomco in the amount of $1,200,000 to-

gether with interest according to law, reasonable attorneys

fees and the costs of this action.

JA 36

On the Third Claim

To the plaintiff Leist in the amount of $500,000 together

with interest according to law, punitive damages and the

costs of this action.

To the plaintiff Smith in the amount of $400,000 together

with interest according to law, punitive damages and the

costs of this action.

To the plaintiff Incomco in the amount of $400,000 to-

gether with interest according to law, punitive damages and

the costs of this action.

On the Fourth Claim

To the plaintiff Leist in the amount of $500,000 together

with interest according to law, punitive damages and the

costs of this action.

To the plaintiff Smith in the amount of $400,000 together

with interest according to law, punitive damages and the

costs of this action.

To the plaintiff Incomeo in the amount of $400,000 to-

gether with interest according to law, punitive damages and

the costs of this action.

Baton, Stout & Irzter

IF xsconeptapassecsasiciauminuniauiaaiecs

Morton S. Rosson

Office and P.O. Address

1180 Avenue of the Americas

New York, New York 10036

(212) 575-7900

[ Affidavit of service omitted]

JA 37

First Amended Consolidated Class Action Complaint in

National Super Spuds, Inc., et al. v. New York Mercantile

Exchange, et al.

UNITED STATES DISTRICT COURT

5 8)

SoutTHerN District or New York

Nationa, Super Spups, Inc., Wiiuiam R. Buster, Jr., WiL-

LARD C, Suiner, Evcene P. Weisman, Ricnarp We ts,

Raymond Rotuserc, Artuur S. Armstrone, THEODORE

Brrinek, Capcarn Howpinas, Inc., and Herz RomMincer,

individually and on behalf of all persons similarly situ-

ated,

Plaintiffs,

—against—

New York MercantILeE Excuance; Crayton BrokeracE Co.

or Sr. Louis, Inc.; Heryotp Commopitirs, Inc.; THom-

son & McKinnon Avcuinctoss Kontmeyer Ine.;

PressNerR Trapinc Corp.; Jack Ricnarp Srmpror; J. R.

Srmptor Co.; Simpnior Inpustries, Inc.; Peter J. Tac-

cares; P, J. Taccares Co.; C. L. Orrer; Srmtac Farms;

Kenneta Ramm; A & B Farms, Inc.; Hucn V. Gren:

GearHeart Farmine, Inc. and Ep McKay,

Defendants.

First AMENDED ConsouipatTep CLass Action CoMPLAINT

76 Civ, 2375 (LFM)

76 Civ. 2554 (LFM)

76 Civ. 2571 (LFM)

76 Civ. 2594 (LFM)

Plaintiffs, by their attorneys, for their first amended con-

solidated class action complaint, allege :

JA 38

I. JurRispicTION AND VENUE

First: This action arises under the Commodity Exchange

Act of 1922, as amended, 7 U.S.C. §1 et. seq. (“the Com-

modity Act”), the rules and regulations of the Commodity

Futures Trading Commission (“CFTC”) 17 C.F.R. §1.1

et. seq., the Charter, By-Laws and Rules adopted by the

defendant New York Mercantile Exchange (“Exchange”)

and the Sherman Anti-Trust Act, §1 ef. seq. (“the Sherman

Act”).

Second; Jurisdiction of this action to recover damages

is based upon 28 U.S.C. § 1337; and 44 of the Clayton Act,

15 U.S.C. § 15.

Third: (a) The commodity transactions complained of

took place within the jurisdiction of the United States

Court for the Southern District of New York, and each of

the defendants is found in and/or participated in business

activities relevant to this action within said district.

(b) The acts complained of herein occurred in interstate

commerce and were accomplished through the use of the

instrumentalities of interstate commerce.

TI. Parties

Fourth: Each of the named plaintiffs purchased May

1976 Maine Potato Future Contracts (“Contract” or “Con-

tracts”) on the Exchange and was damaged in liquidating

said Contracts between April 13, 1976 and the close of

trading on the Exchange on May 7, 1976.

Fifth: Defendant Exchange is a corporation organized

and existing pursuant to the laws of the State of New York,

JA 39

having its principal place of business at 6 Harrison Street,

New York, New York, and is a “contract market” desig-

nated pursuant to § 5 of the Commodity Act (7 U.S.C. §7)

through which transactions for the future delivery of com-

modities may be consummated.

Sith: (a) Defendant Clayton Brokerage Co. of St.

Louis, Ine. (“Clayton”), Heinold Commodities, Inc. (“Hei-

nold”), and Thomson & McKinnon Auchincloss Kohl-

meyer Ine. (“Thomson & McKinnon”), corporations who

have places of business at, respectively, 1 World Trade

Center, New York, New York, 74 Pearl Street, New York,

New York, and One New York Plaza, New York, New York,

are members of the Exchange, members of the Exchange’s

Clearing House, and are also “members of a contract mar-

ket” and “futures commissions merchants” as these terms

are defined in the Commodity Act. At the close of trading

on the Exchange on May 7, 1976, Clayton, Heinold and

Thomson & McKinnon all had accounts that held a short

position in the Contract.

(b) Defendant Pressner Trading Corp. (“Pressner”), a

corporation, with a place of business at 6 Harrison Street,

New York, New York, is a member of the Exchange, a mem-

ber of the Exchange’s Clearing House, and is also a “mem-

ber of a contract market” and “futures commissions mer-

chants” as these terms are defined in the Commodity Act.

At the close of trading on the Exchange on May 7, 1976,

Pressner had accounts that held a short position in the

Contract.

(c) Defendants Clayton, Heinold, Thomson & McK

non and Pressner are hereinafter collectively referred to

as “the Members”.

JA 40

Seventh: (a) Defendant Jack Richard Simplot (“Sim-

plot”) is an individual residing in the State of Idaho. He

conducts business through defendant, J. R. Simplot Co., a

Nevada corporation which has its principal place of busi-

ness in Boise, Idaho, and through defendant, Simplot In-

dustries, Inc., a Utah corporation which has its principal

place of business in the State of Idaho.

(b) Defendant C. L. Otter (“Otter”) is an individual and

and citizen and resident of the State of Idaho. Otter is the

Vice-President of defendant Simplot Industries, Ine. and

is the son-in-law of defendant Simplot.

(ec) Defendant Peter J, Taggares (“Taggares”) is an

individual residing in the State of Washington. He con-

ducts business through a corporation known as P. J. Tag-

gares Co., which defendant has its principal place of busi-

ness in Othello, Washington.

(d) Defendant Simtag Farms is a partnership between

Simplot and Taggares, having its principal place of busi-

ness located in Boardam, Oregon.

(e) Defendants Kenneth Ramm (“Ramm”), Hugh V.

Glenn (“Glenn”) and Ed McKay (“McKay”) are all indi-

viduals residing in Othello, Washington. Defendant A & B

Farms, Ine. (“A & B”) and defendant Gearheart Farming,

Ine. (“Gearheart”) are both Washington corporations, with

their principal place of business located in Othello, Wash-

ington.

(f) Defendants Simplot, Otter. J. R. Simplot Co., Sim-

plot Industries, Inc., Peter .J. Taggares, P. J. Taggares Co.,

Simtag Farms, Ramm, Glenn, McKay, A & B and Gear-

JA 41

heart are hereinafter collectively referred to as the “Short

Sellers”.

III. Puarntirrs’ Ciass ALLEGATIONS

Eighth: Plaintiffs bring their action as a class action

pursuant to Rule 23(b)(3) of the Federal Rules of Civil

Procedure on behalf of themselves and all other persons

who held a net long position in Contracts and who liqui-

dated their long positions in said Contract between April

13, 1976 and the close of trading on the Exchange on May

7, 1976.

Ninth: Plaintiffs do not know the exact size of the class

but believe the numerosity of the members of the elass is

so great that, coupled with the fact that members are locat-

ed throughout the United States, it is impracticable to bring

them all before the Court.

Tenth: The questions of fact and law common to all

members of the class include:

(a) Whether the Short Sellers, individnally or in eon-

cert, engaged in manipulative practices which were de-

signed to artificially lower the trading price of the Contract

in violation of § 4b (7 U.S.C. (6) and/or 49 [7 U.S.C. 413

(b)] of the Commodity Act and 41 of the Sherman Act, 15

U.S.C. §1, ineluding, but not limited to:

(i) From at least as early as April 13, 1976, through

May 7, 1976, acting in unison to sell short additional

Contracts at any price in order to depress the market

price of said Contracts.

(ii) From at least as early as April 13, 1976, through

May 7, 1976, acting in unison by shipping large quanti-

JA 42

ties of unsold Idaho potatoes to the East by “roller

cars” or otherwise in order to reduce the “spot price”

for Maine potatoes and thereby artificially depress the

market price of said Contract.

(iii) From at least as early as April 13, 1976,

through May 7, 1976, acting in unison by failing and

refusing to liquidate their Contracts on or before May

7, 1976.

(b) Whether the Members engaged in manipulative prac-

tices which were designed to artificially lower the trading

price of the Contract in violation of ‘4b (7 U.S.C. §6)

and/or §9 [7 U.S.C. §3(b)] of the Commodity Act and 41

of the Sherman Act, 15 U.S.C. §1?

(ce) Whether the Exchange is liable for the manipulative

practices of Short Sellers and/or Members in artificially

lowering the trading price of the Contract by failing to

enforce its Charter, By-Laws and Rules in violation of

§5a(8) of the Commodity Act [7 U.S.C. §7a(8) and §1.53

of the rules and regulations of the CFTC (17 C.F.R. §1.53)]

and in failing to use due diligence as required by §1.51 of

the rules and regulations of the CFTC (17 C.F.R. $1.51)

to secure compliance with the Commodity Act and its own

Charter, By-Laws and Rules?

(d) Whether Short Sellers and/or Members entered

into short sales of the Contract in excess of the trading

limits imposed by §150.10 of the rules and regulations of

the CFTC (17 C.F.R. (150.10), thereby artificially lowering

the trading price of the Contract?

(e) Whether the Exchange and its Members are liable

for failing to enforce the trading limits imposed by $150.10

JA 43

of the rules and regulations of the CFTC (17 C.F.R.

§150.10), with respect to short sales of the Contract?

(f) Whether there was a violation of §44.02 of the Char-

ter, By-Laws and Rules of the Exchange by Members in

failing to place liquidating orders for customers with a

short position in the Contract?

(g) Whether Short Sellers who failed to liquidate their

short positions in the Contract on or before the final day

of trading when they were not in a position to fulfill their

contractual obligation to deliver, engaged in a manipulative

practice in violation of §4b of the Commodity Act (7 U.S.C.

§6b) and/or §9b of the Commodity Act [7 U.S.C. §13(b)]

thereby artificially lowering the trading price of the Con-

tract?

(h) Whether the Exchange is liable for the failure of

the Members to place liquidating orders for short positions

held in the Contract?

These common questions of law and fact predominate

over any questions affecting only individual members of

the class. The only uncommon question is the actual dollar

amount of damage to which each class member is entitled.

Eleventh: The claims of plaintiffs are typical of the

claims of all members of the class. All members of the

class have an identical interest in seeking damages for the

claims alleged herein. The damages suffered by plaintiffs

insure that they will be sufficiently motivated to adequately

and fairly represent the members of the class. Moreover,

plaintiffs’ counsel are experienced in the class action and

anti-trust fields lending to the fair and adequate repre-

sentation of the class,

JA 44

Twelfth: (a) This class action is superior to other avail-

able methods for fair and efficient adjudication of this con-

troversy in that the interest of the individual members of

the class (the amount of damages individually suffered)

are small in comparison with the expense involved in the

vindication of these interests so that the maintenance of

individual actions is impractical and a class action repre-

sents the only effective method.

(b) It is desirable to concentrate the litigation in the

forum in which many of the acts and practices relevant

to the claim of the class occurred and in which the Ex-

change is located. No difficulties of management are likely

to be encountered, particularly since individual transac-

tions of class members can be documented by records re-

quired to be maintained and filed pursuant to the Com-

modity Act.

IV. Facts

Thirteenth: Maine grown potatoes are a commodity reg-

ularly bought and sold for future delivery subject to the

Charter, By-Laws and Rules of the Exchange. Contracts

for future delivery of Maine potatoes (commonly known

as “potato futures”) have been and are regularly bought

and sold in interstate commerce. These potato futures are

standardized in that each Contract calls for delivery of a

fixed quantity of 50,000 pounds, sometimes referred to as a

carload, of a specified quality of Maine potatoes at a pre-

determined location. Prices are quoted in dollars per hun-

dred weight (“ewt”) or cents per pound. The times of

delivery are also standardized. Potato futures are deliver-

JA 45

able in certain months during the year. This action in-

volves potato futures that were deliverable in May, 1976,

also known as the May 1976 Maine Potatoes Future Con-

tract (“Contract”). When one buys or sells May potato

futures, one enters into a Contract to buy or sell potatoes

deliverable in May at a price agreed upon on the purchase

date. Prices quoted on the Exchange are supposed to repre-

sent, and usually represent, genuine transactions, and as

the quoted price rises or falls, the buyers and sellers have

unrealized profits or losses in their futures. The full pur-

chase price is not payable until the conclusion of trading

(i.e., May 7, 1976 in this ease), but buyers and sellers are

required to post a cash deposit, or margin (approximately

10% of the total price), when they make the trade.

Fourteenth: Trading on or through the Exchange for the

1975 crop of Maine grown potatoes was conducted for Con-

tracts providing for delivery in November, 1975, March,

1976, April, 1976 and May, 1976, with the last of the 1975

Maine potato crop being delivered pursuant to the May

Contract.

Fifteenth: Trading in the May 1976 Maine Potato Fu-

ture Contract (also referred to herein as the “Contract”),

commenced on or about February 18, 1975 and, pursuant

to § 51.01 of the Charter, By-Laws and Rules of the Ex-

change, trading closed on May 7, 1976.

Sixteenth: During the period of February 18, 1975

through May 7, 1976, plaintiffs and the members of the class

bought one or more Contracts (50,000 Ibs.) of May 1976

Maine Potato Futures, thereby holding net long positions.

JA 46

Seventeenth: Throughout its trading, the Contract had

a wide price fluctuation reflected by a low of $5.92 per ewt

($.0592 per pound) and a high of $19.15 per ewt ($.1915 per

pound), with a closing price on May 7, 1976 of $8.70 per ewt

($.087 per pound).

Eighteenth: April 7, 1976 was the last day of trading for

the April 1976 Maine Potato Future Contract. At the close

of business on the Exchange on April 7, 1976, there were

511 open April 1976 Maine Potato Future Contracts which

required the delivery of approximately 25.5 million pounds

of Maine potatoes on or before April 25, 1976. On that

same date, there were 7471 open May 1976 Maine Potato

Future Contracts which, if not liquidated on or before May

7, 1976, required the delivery of more than 373.5 million

pounds of Maine potatoes on or before May 25, 1976.

Nineteenth: (a) On or about April 13, 1976, the United

States Department of Agriculture issued a Report that

stocks of Maine potatoes in storage totalled 7.40 million

ewt on April 1, 1976. The Report was considered very bul-

lish, because the normal consumption of Maine potatoes in

April is 2.5 to 3.0 million ewt, seed usage for the next plant-

ing would require approximately 3.6 million ewt, and ex-

ports were expected to total approximately 1.0 million ewt.

Moreover, the Report stated that total stocks of all potatoes

in storage were only 67.3 million ewt on April 1, 1976, 11%

under the 75.9 million ewt stocked on April 1, 1975.

(b) Said Report, when coupled with other generally

available information with respect to the projected need for

Maine potatoes for export and other uses, provided the

JA 47

Members, Short Sellers and the general investing public,

with a sound basis for determining the quantities of Maine

potatoes that would be available to satisfy delivery obliga-

tions existing in connection with the May 1976 Maine

Potato Future Contract upon its expiration on May 7, 1976.

Twentieth: At the close of business on the Exchange on

May 7, 1976, the Members and Short Sellers (other than

Otter) were short 1911 Contracts which required delivery of

more than 95 million pounds of Maine potatoes no later

than May 25, 1976. The Members (other than Pressner)

and Short Sellers (other than Otter) have defaulted on 1000

of these Contracts requiring delivery of 50 million pounds

of Maine potatoes. Defendant Pressner covered all of its

short positiong between May 7, 1976 and May 25, 1976, by

paying a premium 'in excess of the Contracts’ closing price

of $8.70 per ewt ($.087 per pound), while Otter knowingly

participated in, and was partly responsible for, the decision

of Simplot and/or J. R. Simplot Co., and/or Simplot Indus-

tries, Inc. and/or Simtag to default on Contracts.

COUNT I

As anp For A Seconp Cia ror Retire Acarinst Jack

Ricwarp Simprotr; J. R. Sruptor Co.; Srmpror Inpvs-

tries, Inc.; C. L. Orrer; Perer J. Taccanes; P. J.

Tacaares Co.; Srtac Farms; Kenneta Ramm; A&B

Farms, Inc.; Hven V. Guenn; Gearneart Farina,

Inc. and Ep McKay.

Twenty-First; Plaintiffs repeat and reiterate all of the

allegations contained in paragraphs “First” through

“Twentieth” as if fully set forth herein.

JA 48

Twenty-Second; In August, 1975, the United States De-

partment of Agriculture issued a Report which contained

its first estimate of the number of acres that farmers would

have to harvest in their Fall potato crop. This estimate

stated that the national potato acreage would be down eight

percent (8%) from the previous year with an even larger

drop in Maine. As a result of said Report, and other infor-

mation which led the investing public to believe Maine po-

tatoes would be in short supply, the price of the Contract

rose from $9.75 per ewt ($.0975 per pound) to a record

price of $19.15 per ewt ($.1915 per pound) by October 3,

1975.

Twenty-Third; From August, 1975 through April 13,

1976, the Short Sellers executed a large volume of short

sales of the Contract at prices considerably in excess of

$8.70 per ewt ($.087 per pound).

Twenty-Fourth: On or about April 13, 1976, based on

publicly available information, it was known or should have

been known to Short Sellers that there was an insufficient

number of Maine grown potatoes available in the United

States or elsewhere to satisfy all open commitments for the

Contract through delivery of Maine potatoes.

Twenty-Fifth: On the final day of trading of the Con-

tract on the Exchange and prior thereto, Short Sellers

failed to have liquidating orders placed, despite knowledge

of their inability or unwillingness to fulfill their obligation

to deliver Maine potatoes as required by the Contract and

thereafter Short Sellers (other than Otter) defaulted on

JA 49

said Contracts. In addition, on the final day of trading,

sellers entered into sales of the Contract.

Twenty-Sizth: These activities by Short Sellers which

violated the applicable provisions of the Commodity Act

acted as a manipulative force which artificially lowered the

price of the Contract.

Twenty-Seventh: Had Short Sellers acted properly by

liquidating their short positions, the market price for the

Contract would have risen considerably above the price at

which plaintiffs and members of the class were forced to

liquidate their long position.

Twenty-Eighth: By virtue of the foregoing, plaintiffs and

members of the class have been damaged in an amount as

yet undetermined but believed to be many millions of

dollars.

COUNT II

As anp For A Seconp Ciam ror Retrer Acarnst Jack

Ricnarp Smp ot; J. R. Smpror Co.; Stwperor Ixpvs-

tries, Inc.; C. L. Orrer; Peter J. Taccares; P. J. Tac-

cares, Co.; Smwtac Farms; Kexneta Ramu; A & B

Farms, Inc.; Hven V. Guenn; Gearnearr Farmrne,

Inc. and Ep McKay.

Twenty-Ninth: Plaintiffs repeat and reiterate each and

every allegation contained in paragraphs “First” through

“Twentieth”, “Twenty-Third” and “Twenty-Fourth” as if

fully set forth herein.

JA 50

Thirtiefh;: On or about April 13, 1976, the United States

Department of Agriculture issued a Report that stocks of

Maine potatoes in storage totalled 7.40 million ewt on April

1, 1976. The Report was considered very bullish, because

the normal consumption of Maine potatoes in April is 2.5 to

3.0 million ewt, seed usage for the next planting would re-

quire approximately 3.6 million ewt, and exports were

expected to total approximately 1.0 million ewt. More-

over, the Report stated that total stocks of all potatoes in

storage were only 67.3 million ewt on April 1, 1976, 11%

under the 75.9 million ewt stocked on April 1, 1975. As of

April 1, 1976, there were approximately 8,000 open Con-

tracts of May 1976 Maine potatoes requiring delivery of

4.0 million ewt. The next trading day prices for May 1976

Maine Potato Futures rose significantly.

Thirty-First: In order to counteract the effect of the

Agriculture Department Reports and to depress the price

of May 1976 Maine Potato Futures, Short Sellers engaged

in the following manipulative acts in violation of the Com-

modity Act to reduce the price of May 1976 Potato Futures:

(a) From at least as early as April 13, 1976 through May

7, 1976, Short Sellers exceeded the position and trading

limits imposed by § 150.10 of the Rules and Regulations of

the CFTC (17 C.F.R. § 150.10).

(b) On or about April 13, 1976, Short Sellers sent one

or more roller cars of potatoes moving East, knowing that

they did not have any customer or buyer for those potatoes.

Roller cars are railroad carloads of potatoes that are

shipped from market to market and offered for immediate

sale at the going cash price (i.e., the price for immediate

JA 51

delivery). Normally, shippers dispatch carloads only when

they have buyers for them. The arrival of roller cars at a

market tends to depress prices, and shippers often send

them out for that very purpose.

(c) On or about April 13, 1976, Short Sellers and other

persons unknown to plaintiff entered into an understanding

and agreement to sell May 1976 Maine Potato Futures into

the market at any price, which they did immediately there-

after.

(d) As early as April 13, 1976, Short Sellers knew, or

should have known that there was an insufficient number

of Maine grown potatoes available in the United States or

elsewhere to permit them to make delivery on or before

May 25, 1976 of such potatoes to satisfy all of their open

short positions. Nonetheless prior to and on the final day

of trading, May 7, 1976, Short Sellers entered into an

understanding and agreement pursuant to which they failed

and refused to have liquidating orders filed.

(e) After the close of trading on May 7, 1976, there were

approximately 1,9 open short positions. Short Sellers

then acknowledged inat they could not make delivery pur-

suant to their open short positions, and as of May 25, 1976,

defaulted on 1,000 carloads of Maine potatoes.

(f) Short Sellers delivered for transmission through the

mails and in interstate commerce by telephone and other

means of communication false, misleading and knowingly

inaccurate market information concerning Maine potatoes.

Thirty-Second: The conduct of Short Sellers was in-

tended to and did artificially lower the price of May 1976

JA 52

Maine Potato Futures during the period of at least April

13, 1976 through May 7, 1976 in violation of the Commodity

Act.

Thirty-Third: In closing out or offsetting their open long

positions at the artificially low price manipulated by Short

Sellers, plaintiff and the members of the class have been

damaged in an amount as yet undetermined but believed to

be many millions of dollars.

COUNT ITI

As anp ror A Turrp Ciatm ror Retrer Acarnst Jack

Ricwarp Stmpiot; J. R. Stwpitor Co.; Smwprior Ixpvs-

rries, Inc.; C. L. Orren; Perer J. Taccares; P. J.

Taccares Co.; Surtac Farms; Kennetu Ramo; A & B

Farms, Inc.; Huen V. Guenn; Gearneart Farina,

Inc. and Ep McKay.

Thirty-Fourth: Plaintiffs repeat and reiterate each and

every allegation contained in paragraphs “First” through

“Twentieth”, “Twenty-Third”, “Twenty-Fourth”, and

“Thirtieth” through “Thirty-Second”, as if fully set forth

herein.

Thirty-Fifth: Short Sellers have combined and conspired

with each other and with others presently unknown to

plaintiffs in violation of 41 of the Sherman Act, 15 U.S.C.

§ 1, to manipulate the supply and the market price of pota-

toes in the United States, to manipulate and to artificially

depress the price of the Contract, to refuse to close out their

open short positions in May 1976 Maine Potatoes Futures

JA 53

on or before May 7, 1976, and to do the various acts, inter

alia, as alleged in paragraph “Thirty-First” hereof.

Thirty-Sixth: Tae aforesaid combination and conspiracy

was intended to and did artificially lower the price of May

1976 Maine Potato Futures during the period of at least

April 13, 1976 through May 7, 1976.

Thirty-Seventh; As a result of the aforesaid combination

and conspiracy, plaintiffs and all members of the class have

been injured in that they were required to sell their May

1976 Maine Potato Futures during the period of at least

April 13, 1976 through May 7, 1976 at artificially low prices,

prices substantiaily lower than they would have been paid

in the absence of said combination and conspiracy.

Thirty-Eighth: Plaintiffs and all members of the class ac-

cordingly have been injured in their business and property

as a result of said combination and conspiracy, in amounts

as yet undetermined but believed to be in the many millions

of dollars.

COUNT TV

As AND For A F'trst Ciatm ror Retier Acatnst CLayTon

Brokerace Co, or St. Lovis, Inc.; Herroup Commop-

1T1e8, Inc.; THomson & McKinnon Avcnincioss Kont-

MEYER Inc.; and PressNer Trapinc Corp.

Thirty-Ninth: Plaintiffs repeat and reiterate each and

every allegation contained in paragraphs “First” through

“Twentieth”, “Twenty-Third”, “Twenty-Fourth”, “Twenty-

Fifth” and “Thirtieth”, as if fully set forth herein.

JA 54

Fortieth: (a) On or before the final day of trading of the

Contract on May 7, 1976, Members failed, as required by

§ 44.02 of the Charter, By-Laws, Rules and Regulations of

the Exchange to have liqnidating orders placed, despite the

fact that they knew or should have known that their account

or accounts could not fulfill their obligation to deliver Maine

potatoes.

(b) Members also permitted the Short Sellers to exceed

the position and trading limits imposed by the Commodity

Act and Regulations of the CFTC as aforesaid and failed

to report these violations.

(c) Members also failed and neglected to report and con-

cealed other violations of the Commodity Act, Rules and

Regulations of the Commission, and By-Laws, Rules and

Regulations of defendant Exchange by one or more of their

accounts with respect to the Contract, of which they knew

or should have known.

Forty-First: These acts by Members directly affected

the price of the Contract which was artificially depressed

as a result thereof.

Forty-Second: Had Members acted in accordance with

the Commodity Act, and the Charter, By-Laws, Rules and

Regulations of the Exchange. the market price of the Con-

tract would have risen considerably above the price at which

plaintiffs and members of the class were forced to liquidate

their long position.

Forty-Third: By reason of the foregoing, plaintiffs and

members of the class have been damaged in an amount as

JA 55

yet undetermined but believed to be in the many millions

of dollars.

COUNT V

As AND For A Seconp Cia ror Revier Acarnst Ciay-

TON Broxerace Co. or St. Louis, Inc.; Hernotp Com-

MopITIES, Inc.; THomson & McKinnon AvcHINCLoss

Konumeyer Inc, and Pressyer Trapine Corp.

Forty-Fourth: Plaintiffs repeat and reiterate each and

every allegation contained in paragraphs “First” through

“Twentieth”, “Twenty-Third”, “Twenty-Fourth”, “Twenty-

Fifth”, “Thirtieth” through “Thirty-Third” and “Fortieth”,

as if fully set forth herein.

Forty-Fifth: Members held accounts through which

Short Sellers executed one or more transactions in the

Contract.

Forty-Sixth: Members, with knowledge of intent of Short

Sellers to deflate the prices of the Contract acquiesced and/

or participated in the acts of Short Sellers,

Forty-Seventh: As a result of the manipulative acts and

omissions of the Members in violation of the Commodity

Act and § 1 of the Sherman Act, the plaintiffs and members

of the class have been damaged in an amount yet to be

determined but believed to be in the many millions of

dollars.

JA 56

COUNT VI

As AND For A First Ciam ror Reuier AGAINST

THE New York MercANTILE EXCHANGE

Forty-Eighth: Plaintiffs repeat and reiterate each and

every allegation contained in paragraphs “First” through

“Twentieth”, “Twenty-Third”, “Twenty-Fourth”, “Twenty-

Fifth” and “Thirtieth”, as if fully set forth herein.

Forty-Ninth: Between April 14, 1976 and May 7, 1976,

the CFTC had its personnel oa the floor of the Exchange

and brought to the attention of the Exchange’s officers, the

large short position of the Short Sellers and Members in

the Contract. Moreover, on or about May 5, 1976, the CFTC

sent mail-o-grams to the Exchange in which it noted that

traders had amassed sizeable obligations to deliver Maine

potatoes from the 1975 crop. The mail-o-grams also stated

that the Short Sellers were “required by law to avoid caus-

ing artificial prices in either cash or futures market”.

Fiftieth: Despite the aforesaid warnings by personnel of

the CFTC, officers of the Exchange assured the CFTC that

the short positions would be covered notwithstanding the

fact that the Exchange had taken no steps to resolve the

problem and had no basis for so advising the CFTC.

Fifty-First: Contrary to and in violation of the Com-

modity Act, the Rules and Regulations of the CFTC, and

its own By-Laws, Rules and Regulations, the Exchange:

(a) Failed and neglected to report and concealed viola-

tions of the Commodity Act, the Rules and Regulations of

JA 57

the CFTC and its own By-Laws, Rules and Regulations by

the Short Sellers and Members.

(b) Failed and neglected to direct that liquidating orders

of the Contract be entered on or before May 7, 1976 with

respect to accounts of Members which Exchange knew or

should have known would default if not liquidated.

(c) Failed and neglected to perform its duties as a con-

tract market with respect to the Contract.

(d) Failed and neglected to exercise due care to halt

manipulative practices with respect to the Contract.

Fifty-Second: As a result of the acts and omissions of

Exchange, the price of the Contract was artificially lowered

during the period of at least April 13, 1976 through May

7, 1976.

Fifty-Third: In closing out or offsetting their open long

positions at the artificially low price caused by the acts and

omissions of defendant Exchange, plaintiffs and the mem-

bers of the class have been damagid in an amount as yet

undetermined but believed to be in the many millions of

dollars.

Wuererorr, plaintiffs, individually and on behalf of the

class, demand judgment against the defendants as follows:

(a) On Counts I, IT, TV, and VI in an amount equal

to the damages which have been sustained by the class;

and

JA 58

(b) On Counts III and V in an amount equal to

treble the damages which have been sustained by the

class; and

(ec) All together with interest, costs and disburse-

ments of the action, and the reasonable attorneys’ fees

incurred in the prosecution of the action.

Dated:

Yours, ete.,

Pomerantz Levy Havpex & Brock

TIE sscsicasspnesmboseontoteenindsinibibaaketnaseechpeasiaibtiiciidein

A Member of the Firm

Lead Counsel for Plaintiffs

295 Madison Avenue

New York, New York 10017

(212) 532-4800

Worr, Biock, Scrorr and Sorts-Conen

Attorneys for Plaintiff William R.

Buster, Jr.

Seymour Kurland

Judah I. Labovitz

Ian A. Strogatz

Alan B. Rubenstein

Twelfth Floor Packard Building

Philadelphia, Pa. 19102

JA 59

Lieve, Ruskiw & Scwutsser, P.C.

Attorneys for Plaintiff

National Super Spuds, Inc.

Richard A. Lippe

Melvyn B. Ruskin

Michael L. Faltischek

114 Old Country Road

Mineola, New York 11501

(516) 248-9500

HoturnsHeaD and Menpetson

James A. Lewis, Esq.

T. Lawrence Palmer, Esq.

3010 Mellon Bank Building

Pittsburgh, Pa. 15219

(412) 281-2222

Keenan & Pepersen

Edward F. Keenan, Esq.

John M. Murray, Esq.

36 West 44th Street

New York, New York 10036

(212) 682-4474

Attorneys for Plaintiffs Willard C.

Shiner, Eugene P. Weisman, Richard

Welts, Raymond Rothberg, Arthur S.

Armstrong, Theodore Brinek, Capgain

Holdings, Inc. & Heitz Romminger

[Affidavit of service omitted]

JA 60

Opinion of the District Court

UNITED STATES DISTRICT COURT

Soutuern Districr or New York

76 Civ, 2375 (LFM), 76 Civ. 2554 (LFM),

76 Civ. 2571 (LFM), 76 Civ. 2594 (LFM)

NationaL Super Spvps, Inc. et al.,

Plaintiffs,

—against—

New York Mercantite Excuance et al.,

Defendants.

76 Civ. 2648 (LFM)

Incomco,

Plaintiff,

—against

New York Mercantite Excuance et al.,

Defendants.

76 Civ. 3210 (LFM)

Howard BErenson,

Plaintiff.

—against—

Joun Ricuarp Simptor et al.,

Defendants.

JA 61

76 Civ. 4350 (LFM)

New Leisr et al.,

Plaintiffs,

—against—

Joun Ricuarp Simptor et al.,

Defendants.

76 Civ. 5200 (LFM)

Dexter Ricuarps,

Plaintiff,

—against—

New York Mercantite Excuance et al.,

Defendants.

APPEARANCES:

Rein, Mound & Cotton

By: Maurice Mound, Esq.

130 John Street

New York, N.Y. 10038

—and—

Cahill Gordon & Reindel

By: William E. Hegarty, Charles Platto, Ruth D.

MeNaughton and Peter Leight, Esqs.

80 Pine Street

New York, N.Y. 10005

Attorneys for defendant New York

Mercantile Exchange.

JA 62

Thompson & Mitchell

By: W. Stanley Walch, Gerard K. Sandweg, Jr.

and Kenton E. Knickmeyer, Esqs.

One Mercantile Center

St. Louis, Mo. 63101

—and—.

Barrett, Smith, Schapiro, Simon

& Armstrong

26 Broadway

New York, N.Y. 10004

Attorneys for defendant Clayton

Brokerage Co. of St. Louis, Inc.

Dewey Ballantine Bushby Palmer

& Wood

By: Hugh N. Fryer and

Ira G. Greenberg, Esqs.

140 Broadway

New York, N.Y. 10006

—and—

Sidley & Austin

By: Stuart S. Ball, Lawrence H. Hunt, Jr.,

Thomas F, Ryan and Michael W. Davis, Fsqs.

One First National Plaza

Chicago, Tll. 60603

Attorneys for defendant Heinold

Commodities, Inc.

Hall, MeNicol, Hamilton & Clark

By: Donald G. McCabe, Esq.

330 Madison Avenue

New York, N.Y. 10017

Attorneys for defendant Thomson &

McKinnon Auchincloss Kohlmeyer, Inc.

JA 63

Pomerantz Levy Haudek & Block

By: William E. Haudek, Richard M. Meyer

and Roger W. Haudek, Esqs.

295 Madison Avenue

New York, N.Y. 10017

Lead Counsel for Class Plaintiffs

Howard Berenson, plaintiff pro se.

Robson & Toboroff |

By: Leonard Toboroff and

Kenneth N. Miller, Esqs.

950 Third Avenue

New York, N.Y. 10022

Attorneys for plaintiffs Neil Leist,

Philip M. Smith and Incomco.

Jay W. Kaufmann, Esq.

111 Broadway

New York, N. Y. 10006

Attorney for plaintiff Dexter Richards.

MacManon, District Judge.

Defendants, the New York Mercantile Exchange (the

“Exchange”), Richard Levine (“Levine”), Howard Gabler

(“Gabler”), Alfred Pennisi (“Pennisi”), Clayton Broker-

age Co. of St. Louis, Ine. (“Clayton”), Heinold Commodi-

ties, Inc. (“Heinold”) and Thomson & McKinnon Auchin-

closs Kohlmeyer, Ine. (“Thomson”), move under Rule

12(c), Fed.R.Civ.P., for judgment on the pleadings, or,

in the alternative, under Rule 56(b), Fed.R.Civ.P., for

partial summary judgment dismissing all or part of the

complaints against them in these related actions.’ Since

*The Exchange moves in the following actions: National Super

Spuds, Inc. v. New York Mercantile Exchange, 76 Civ. 2375, 76

Civ. 2554, 76 Civ. 2571, 76 Civ. 2594 (the “consolidated class ac-

JA 64

all parties have submitted factual material outside the

pleadings, we treat the motions as motions for partial

summary judgment.

These actions arise out of the much publicized default

in May 1976 of Maine potato futures contracts,’ when the

sellers of almost 1,000 contracts failed to deliver approx-

imately 50,000,000 pounds of potatoes, resulting in the

largest default in the history of commodities futures trad-

ing in this country. The primary claim in these actions is

that the default was caused by certain defendants’ price

manipulation.

In order to understand these motions, a basic under-

standing of the commodities futures industry is essential.

A commodity future is a contract for the future delivery

of a certain commodity. Except for price, all the terms of

the contracts for a given commodity traded on an exchange

are standardized and, thus, the contracts are fungible. The

actual trading of futures is done by futures commission

merchants and floor brokers, both of whom must be reg-

istered with the Commodities Futures Trading Commission

tions”) ; Incomco v. New York Mercantile Exchange, 76 Civ. 2648;

and Leist v. Simplot, 76 Civ. 4350.

Levine, Gabler and Pennisi move in Letst v. Simplot, 76 Civ.

4350.

Clayton moves in the consolidated class actions and in Leist v.

Simplot, 76 Civ. 4350.

Heinold and Thomson move in the consolidated class actions, in

— v. Simplot, 76 Civ. 3210, and in Leist v. Simplot, 76 Civ.

The motions of the Exchange, Levine, Clayton, Heinold and

Thomson in Richards v. New York Mercantile Exchange, 76 Civ.

5200, are denied as moot because this action was discontinued after

these motions were filed.

The motions of the Exchange and Clayton in Berenson v. Sim-

plot, 76 Civ. 3210, are also denied as moot because this action has

been discontinued as to the Exchange and Clayton.

2 See N.Y. Times, May 26, 1976, at 1, col. 1.

JA 65

(the “CFTC”).’ Additionally, trading may take place only

on exchanges which have complied with certain statutory

requirements and have been designed as “contract mar-

kets” by the CFTC.‘

A seller of a futures contract is, in the language of the

trade, in a “short” position, that is, he is obligated to de-

liver the commodity at a future date in return for the

right to receive the purchase price. Conversely, a buyer of

a futures contract is said to be in a “long” position, that

is, he is obligated to pay the purchase price in return for

the right to receive the commodity. As a practical matter,

however, physical delivery of the commodity is made on

only a small fraction of the futures contracts traded on

the nation’s exchanges. Most of the trades are made by

speculators who have no intention of delivering or receiv-

ing the actual commodity. As the last day of trading in a

particular contract approaches, a speculator in a short po-

sition (a seller) will cover his obligation to deliver by

buying a contract. Similarly, a speculator in a long posi-

tion (a buyer) will cover his obligation to pay by selling a

contract.®

Plaintiffs, traders and a dealer in potatoes, were buyers

holding long positions in May 1976 Maine potato futures

contracts. They allege that Clayton, Heinoid and Thomson,

futures commission merchants, conspired with certain of

their customers to manipulate and depress the price of the

May contract by selling an illegally large number of May

contracts, thereby causing plaintiffs to sell their contracts

and potatoes at an artificially depressed price.

°7 U.S.C. §§ 6d, 6e, 6f.

‘7 U.S.C. §§ 6, 7.

5 The commodities futures industry is described in more detail

in S. Angrist, Sensible Speculating in Commodities (1972) and

S. Kroll & I. Shishko, Commodity Futures Market Guide (1973).

JA 66

Plaintiffs contend that the actions of Clayton, Heinold

and Thomson violated the Commodities Exchange Act*

(the “Act”), various regulations promulgated thereunder,’

and Sections 1 and 2 of the Sherman Act.* Plaintiffs also

contend that the Exchange, a designated contract market,

and its officers, Levine, Gabler and Pennisi, are liable to

them for failure to take steps to prevent the downward

price manipulation by the other defendants, and that the

Exchange conspired with the other defendants to manipu-

late the price.

Specifically, plaintiffs allege that the Exchange and its

officers failed to report and concealed violations of the Act

and the regulations promulgated thereunder; that the Ex-

change and its officers violated the Act by failing to enforce

its own rules, the Act and the CFTC’s regulations; and

that the Exchange violated Sections 1 and 2 of the Sherman

Act.

Impurep Ricut or Action

All moving defendants contend that they are entitled to

partial summary judgment because there is no private

right of action against them under the Act. Concededly,

such a right of action existed prior to 1974,* but, in that

*7 U.S.C. § 1 et seq.

’ Plaintiffs also allege violations of the Exchange's rules. Be-

cause the obligation to obey these rules arises under the CFTC’s

regulations, we consider these claims as alleging violations of the

CFTC’s regulations.

*15 U.S.C. §§1, 2.

° E.9., Deaktor v. L.D. Schreiber & Co., 479 F.2d 529 (7th Cir.),

rev'd on other grounds sub nom. Chicago Mercantile Exchange v.

Deaktor, 414 U.S. 113 (1973) ; Goodman v. H. Hentz & Co., 265

F. Supp. 440 (N.D. Ill. 1967).

JA 67

year, the Act was amended extensively,” and the ques-

tion before us is whether the private right of action has

survived the 1974 amendments to the Act.

Although a number of other district courts have con-

sidered this question, there is no clear consensus on the

answer."' This difference of opinion and the importance

of the question to the future course of these actions compel

us to resolve the question ourselves.

Under Cort v. Ash,’* four factors are relevant in deter-

mining whether a private right of action may be implied

under a federal statute which does not expressly provide

for one:

“First, is the plaintiff ‘one of the class for whose

especial benefit the statute was enacted,’ ... that is,

1°Commodity Futures Trading Commission Act of 1974, Pub.

L. No. 93-463, 88 Stat. 1389 (codified at 7 U.S.C. § 1 et seq.). The

Act was further amended in 1978. Futures Trading Act of 1978,

Pub. L. No. 95-405, 92 Stat. 865 (codified at 7 U.S.C. §1 et seq.).

1! Nine cases have stated that a private right of action exists

under the Act: R.J. Hereley & Son v. Stotler & Co., Comm. Fut.

L. Rep. (CCH) 20,773 (N.D. Ill. 1979) ; Smith v. Grover. No. 77

C 2297 (N.D. Ill. Feb. 2, 1979); Gravois v. Fairchild, Arabatzis

¢& Smith, Inc., Comm. Fut. L. Rep. (CCH) § 20,706 (E.D. La.

1978) ; Berenson v. Madda Trading Co., No. 78-544 (D.D.C. Oct.

30, 1978) ; Hoffmayer v. Dean Witter & Co., Comm. Fut. L. Rep.

(CCH) $20,694 (N.D. Cal. 1978); Kelley v. Carr, 442 F. Supp.

346 (W.D. Mich. 1977) ; Bache Halsey Stuart, Inc. v. French, 425

F. Supp. 1231 (D.D.C. 1977); Shearson Hayden Stone, Ine. v.

Lumber Merchants, Inc., 423 F. Supp. 559 (S.D. Fla. 1976);

rh v. Conticommodity Serv., Inc., 462 F. Supp. 405 (N.D. Cal.

1 ;

Five cases have stated that no private right of action exists

under the Act: Alkan v. Rosenthal & Co., Comm, Fut. L. Rep.

(CCH) { 20,797 (S.D. Ohio 1979) ; Berman v. Bache Halsey Stu-

art, Shields, Inc., Comm. Fut. L. Rep. (CCH) { 20,796 (S.D. Ohio

1979) ; Bartels v. International Commodities Corp., 435 F. Supp.

865 (D. Conn. 1977) ; Consolo v. Hornblower & Weeks-Hemphill,

Noyes, Inc., 436 F. Supp. 447 (D. Ohio 1976); Arkoosh v. Dean

Witter & Co, 415 F. Supp. 535 (D. Neb. 1976), aff'd on other

grounds, 571 F.2d 437 (8th Cir. 1978).

12 422 U.S. 66 (1975).

JA 68

does the statute create a federal right in favor of the

plaintiff? Second, is there any indication of legisla-

tive intent, explicit or implicit, either to create such

a remedy or to deny one? ... Third, is it consistent

with the underlying purposes of the legislative scheme

to imply such a remedy for the plaintiff? ... And

finally, is the cause of action one traditionally relegated

to state law, in an area basically the concern of the

States, so that it would be inappropriate to infer a

cause of action based solely on federal law? .. .”**

There can be no question that plaintiffs, investors in the

commodities market and a dealer in potatoes, are within

the class “for whose especial benefit the statute was en-

acted.” As Senator Dole stated, the primary purposes of

the 1974 amendments to the Act were “[to protect] against

manipulation of markets and to protect any individual who

desires to participate in futures market trading.” ‘* Addi-

tionally, the Act itself states that price manipulation and

unreasonable fluctuations in price “are detrimental to...

persons handling the commodities.” **

Thus, we find that the first element of the Cort test is

satisfied.

The second element of the Cort test, congressional intent,

is more troublesome. The 1974 amendments to the Act

established an administrative procedure under which

“fajny person complaining of any violation of any pro-

vision of this chapter or any rule, regulation, or order

thereunder by any person who is registered or required to

13 7d. at 78 (citations omitted).

14120 Cong. Rec.-Senate 30466 (1974) (remarks of Sen. Dole) ;

accord 120 Cong. Rec.-Senate 34998-99 (1974) (remarks of Sen.

Clark). See also Ames v. Merrill Lynch, Pierce, Fenner & Smith,

Ine., 567 F.2d 1174, 1179 (2d Cir. 1977).

67 USC. §5.

JA 69

be registered under . . . this title may” ’* commence an

administrative proceeding before the CFTC to recover

reparations. Judgments resulting from these reparation

proceedings are subject to judicial review by the courts

of appeal’ and may be enforced in the district courts.’*

The 1974 amendments also give the CFTC plenary power

over futures commission merchants and contract markets.

The CFTC may suspend or revoke the registration of a

futures commission merchant or the designation of a con-

tract market.’® The CFTC is also authorized to issue cease

and desist orders against contract markets*® and to assess

civil penalties of up to $100,000 against futures commission

merchants and contract markets.*! Finally, the CFTC or

the Attorney General, at the request of the CFTC, is au-

thorized to bring an action in the district courts against

futures commission merchants and contract markets for

a restraining order, an injunction or a writ of mandamus

to compel compliance with the Act and the regulations

thereunder.”*

We believe that under the maxim of “cxpressio unius

est exclusio alterius,” ** the establishment of administrative

67 U.S.C. § 18(a).

77 U.S.C. § 18(g).

87 U.S.C. §18(f).

197 U.S.C. §§ 7b, 9.

207 1J.8.C. § 13a.

27 U.S.C. §§9, 13a.

227 U.S.C. § 13a-1. The 1978 amendments to the Act added a

provision by which a state may bring an action under the Act on

behalf of its citizens. 7 U.S.C. § 13a-2.

*3 Expression of one thing is the exclusion of another. See

Securities Investor Protection Corp. v. Barbour, 421 U.S. 412, 419

(1975) ; National R.R. Passenger Corp. v. National Ass’n of R.R.

Passengers, 414 U.S. 453, 458 (1974); Redington v. Touche Ross

& Co., 592 F.2d 617, 629-30 (2d Cir.) (Mulligan, J., dissenting),

cert. granted, 47 U.S.L.W. 3368 (U.S. Nov. 27, 1978) (No. 78-309).

JA 70

reparation proceedings and the plenary grant of discipli-

nary and regulatory power to the CFTC evidences a con-

gressional intent to deny a private right of action under

the Act. This conclusion is reinforced by the fact that

Congress was informed of the need for a private right of

action under the Act** but rejected a bill which would

have expressly established such a right of action.”®

Thus, we conclude that Congress did not intend that

there be a private right of action under the Act.

The third element of the Cort test, whether the implica-

tion of a private right of action would be consistent with

the underlying purposes of the Act, also weighs against

the implication of such a right. As applied by the Supreme

Court, this element of the Cort test is satisfied when the

implication of a private right of action is necessary in

order to further the purposes of the statute in question.**

Contract markets, such as the Exchange, are not regis-

tered persons under the Act, and, thus, they are exempt

from the administrative reparation proceeding established

by the Act. The CFTC alone has the right to assess a

monetary civil penalty against a contract market, and the

Act imposes two limitations on the amount of the civil

penalty which may be assessed against a contract market.

First, there is an overall limitation of $100,000." Second,

*4 Hearings on S. 2485, S. 2578, S. 2837 and H.R. 13113 before

the Senate Committee on Agriculture and Forestry, 93d Cong., 2d

Sess. pt. 3, 737, 746 (1974) (testimony of Prof. Roy A. Schotland).

28S. 2837, 93d Cong., Ist Sess. § 505(a) (1973). This bill pro-

vided for actual damages for non-wilful violations of the Act and

treble damages for wilful violations.

°6 Piper v. Chris-Craft Indus., Inc., 430 U.S. 1, 39-40 (1977);

Cort v. Ash, supra, 422 U.S. at 84; JJ. Case Co. v. Borak, 377

U.S. 426, 432 (1964) ; Comment, Implying Private Causes of Ac-

tion from Federal Statutes, 17 Boston Col. Indus. & Com. L. Rev.

53, 69 (1975).

777 U.S.C. § 13a.

JA 71

the CFTC is required to consider “whether the amount of

the penalty will materially impair the contract market’s

ability to carry on its operations and duties.” ** We be-

lieve that both of these limitations evidence a congressional

intent to limit the potential monetary exposure of contract

markets. Since neither of these limitations would be pres-

ent in private actions against contract markets, the im-

plication of a right of action against contract markets

would be inconsistent with the manifest intent of Congress

to limit the potential monetary liability of contract markets.

Additionally, the implication of a private right of action

against futures commission merchants would not be con-

sistent with the Act because it is not necessary to further

the purposes of the Act. Since there is no dispute that

futures commission merchants, such as Clayton, Heinold

and Thomson, are subject to the administrative reparation

proceedings mentioned above,” there is plainly no neces-

sity to imply a right of action to remedy injuries which

are fully compensable in administrative proceedings.

_ Thus, we conclude that implication of a private right

of action under the Act would not be consistent with the

underlying purposes of the Act.

The fourth element of the Cort test, whether the im-

plication of a private right would infringe on an area of

state concern, favors the implication of such a right since

it is well settled that the regulation of commodity futures

trading is essentially a matter of federal concern.”

Thus, our application of the Cort test leads us to con-

clude that there is no private right of action under the

28 Td.

29 See text accompanying notes 16-18, supra.

3°See e.g. Smith v. Grover, supra, slip op. at 18-19; Gravois vy.

Fairchild, Arabatzis & Smith, Inc., supra, Comm. Fut. L. Rep.

(CCH) {| 20,706 at 22,873.

JA 72

Act because the two critical elements of the test,®' con-

gressional intent and consistency with the statutory scheme,

weigh strongly against the implication of such a right.

Plaintiffs contend that the implication of a private right

of action under the Act is compelled by those cases which

have implied private rights of action under the Securities

Exchange Act of 1934.** Although we agree with plain-

tiffs that there are some similarities between the com-

modity futures industry and the securities industry, we

find that the respective statutory schemes are significantly

different. First, the Securities Exchange Act does not pro-

vide any administrative remedy to defrauded investors as

does the Commodities Exchange Act. Second, the Secu-

rities Exchange Act does not grant the SEC the same

plenary powers that the Commodities Exchange Act gives

the CFTC." Finally, the Commodities Exchange Act con-

tains no counterpart to the Securities Exchange Act’s spe-

cific grant of jurisdiction to the district courts over viola-

tions of that Act,** which the Supreme Court found of

31 See National R.R. Passenger Corp. v. National Ass’n of R.R.

Passengers, supra, 414 U.S. at 457-58.

3215 U.S.C. § 78a et seq.

33The SEC’s power over brokers, dealers and securities ex-

changes is limited to suspension or revocation of their registration.

15 U.S.C. §§ 780(b) (4), 78s(h). The SEC may also seek to en-

join brokers, dealers and securities exchanges from violating the

Security Exchange Act. 15 U.S.C. § 78u.

3415 U.S.C. § 78aa provides, in pertinent part, that:

“The district courts of the United States, and the United

States courts of any Territory or other place subject to the

jurisdiction of the United States shall have exclusive juris-

diction of violations of this chapter or the rules and regula-

tions thereunder, and of all suits in equity and actions at law

brought to enforce any liability or duty created by this chap-

ter or the rules and regulations thereunder.”

Although 7 U.S.C. § 13a-2(2) closely resembles the language quoted

above, its reach is expressly limited to actions brought by state

attorneys general.

JA 73

critical importance when it implied private rights of ac-

tion under that Act.*®

Plaintiffs also argue that the CFTC interprets the Act

as allowing private rights of action** and that the CFTC’s

interpretation is entitled to “‘great deference.” * How-

ever, as the Supreme Court has recently stated, the ad-

ministrative deference rule is not applicable where the

“narrow legal issue is one particularly reserved for judicial

resolution, namely whether a cause of action should be im-

plied by judicial interpretation in favor of a particular

class of litigants.” *

Finally, we note that the Supreme Court’s recent deci-

sion in Cannon vy. University of Chicago® is readily dis-

tinguishable from this case. In Cannon, the Supreme

Court implied a private right of action for a victim of al-

leged sex discrimination under Title IX of the Education

Amendments of 1972,*° despite the existence of an adminis-

trative procedure to enforce those amendments. However,

the only administrative remedy under Title IX is the

termination of federal grants to educational institutions

which discriminate on the basis of sex. Thus, the Supreme

Court found that Title IX provided no private administra-

tive remedy to victims of sex discrimination.“ In contrast,

%5 Securities Investor Protection Corp. v. Barbour, supra, 421

U.S. at 424; J.J. Case Co. v. Borak, supra, 377 U.S. at 430-31.

3® Amicus Curiae Brief of the Commodities Futures Trading

Commission submitted in Smith v. Grover, supra.

7 United States v. Consumer Life Ins. Co., 430 U.S. 725, 752

(1977) (citations omitted).

38 Piper v. Chris-Craft Indus., Inc., supra, 430 U.S. at 41 n.27.

°° 47 U.S.L.W. 4549 (U.S. May 14, 1979) (No. 77-926).

4920 U.S.C. §§ 1681-1686.

*! See 47 U.S.L.W. at 4556.

JA 74

the reparations procedure available under the Commodities

Exchange Act provides a remedy directly for the benefit

of private parties injured by violations. Thus, unlike

Cannon, the implication of a right of action here is not

necessary to provide a plenary remedy to the intended

beneficiaries of the Act.

Cannon is also distinguishable for a second reason. In

Cannon, the Supreme Court noted that Title [IX was en-

acted in 1972 when the Court had been rather liberal in

finding implied rights of action. The Court found that

Congress expected Title LX to be interpreted in accordance

with that liberal view.** The Commodities Exchange Act,

on the other hand, was reconsidered by Congress as re-

cently as last year when the Supreme Court had retreated

from its liberal view toward implied rights of action.”

Yet, in enacting the 1978 amendments to the Act, Congress

again failed to add a section expressly providing for a

private right of action despite knowledge that a number

of district courts had held that the private right of action

previously implied did not survive the 1974 amendments.“

Cannon teaches that the failure of Congress to provide for

a private right of action must be viewed in light of the

judicial attitude toward such rights at the time of enact-

ment. In light of that teaching, the failure of Congress to

provide for a private right of action in the 1978 amend-

ments evidences an intent to deny such a right.

Thus, we conclude that there is no private right of action

against futures commission merchants and contract mar-

kets under the Act. Since there is no private right of action

under the Act, it necessarily follows that there is no private

“7d. at 4554.

37d.

** 124 Cong. Ree.-Senate 10537 (remarks of Sen. Huddleston).

JA 75

right of action under the regulations promulgated pur-

suant to the Act.‘

ANTITRUST CLAIMS

Clayton and Heinold also move for summary judgment

on the antitrust claims, asserting that there is no genuine

issue of fact that they did not intend to manipulate the

price of May 1976 Maine potato futures contracts.

A party seeking summary judgment bears the burden of

demonstrating the absence of any genuine issue of fact,**

even when the motion is unopposed.** Clayton and Heinold

have submitted excerpts of deposition testimony given by

certain of their employees. Although this testimony does

tend to,show that Clayton and Heinold lacked the intent

required for a violation of the Sherman Act, it is neither

conclusive nor sufficiently clear to allow us to conclude that

there is no genuine issue of fact. Clayton’s employee, Del-

bridge, admitted that Clayton took no steps to investigate

its clients’ ability to deliver despite their large short posi-

tion, and Heinold’s vice-president, Klopfenstein, admitted

that Heinold did not take the steps that it normally would

have taken to ensure that its short customers could deliver.

Given the elusive nature of intent and its significance to an

antitrust violation,“* we cannot say that there is no issue

of fact regarding Clayton’s and Heinold’s knowledge and

intent.*®

8 Crane Co. v. American Standard, Inc., No. 77-7517, slip op.

at 2019 n.11 (2d Cir. Apr. 4, 1979).

6 Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).

‘7 Td. at 160.

8 See United States v. United States Gypsum Co., 98 S. Ct. 2864

(1978).

**See SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d

Cir. 1978) (“(S]ummary judgment is rd to be inappropriate

when the issues concern intent.’’).

JA 76

Accordingly :

1. There being no just reason for delay, the Clerk of the

court is directed, pursuant to Rule 54(b), Fed.R.Civ.P., to

enter final judgment:

A. In favor of the Exchange on its motions for

partial summary judgment on the sixth claim of the

first amended consolidated class action complaint in

National Super Spuds, Inc. v. New York Mercantile

Exchange, 76 Civ. 2375, 76 Civ. 2554, 76 Civ. 2571 and

76 Civ. 2594; the first and fourth claims of the com-

plaint in Incomco v. New York Mercantile Exchange, 76

Civ. 2648; and the fourth claim of the complaint in

Leist v. Simplot, 76 Civ. 4350;

B. In favor of Levine, Gabler and Pennisi on their

motion for summary judgment on the fourth claim of

the complaint in Leist v. Simplot, 76 Civ. 4350;

C. In favor of Clayton on its motions for partial

summary judgment on the fourth siaim of the first

amended consolidated class action complaint in Na-

tional Super Spuds, Inc. v. New York Mercantile Ex-

change, 76 Civ. 2375, 76 Civ. 2554, 76 Civ. 2571 and 76

Civ. 2594; and the first claim of the complaint in Leist

v. Simplot, 76 Civ. 4350;

D. In favor of Heinold and Thomson on their mo-

tions for partial summary judgment on the fourth

claim of the first amended consolidated class action

complaint in National Super Spuds, Inc. v. New York

Mercantile Exchange, 76 Civ. 2375, 76 Civ. 2554, 76 Civ.

2571 and 76 Civ. 2594; the first claim of the complaint

in Leist v. Simplot, 76 Civ. 4350; and the second claim

of the complaint in Berenson v. Simplot, 76 Civ. 3210,

to the extent that it asserts a claim under the Act.

JA 77

2. Clayton’s and Heinold’s motions for summary judg-

ment in their favor on all other claims against them are

denied in all respects.

So ordered.

Dated: New York, N.Y.

May 29, 1979

/3/ Luoyp F, MacManon

Luioyp F. MacManon

United States District Judge

JA 78

Judgment of the District Court

UNITED STATES DISTRICT COURT

Soutuern District or New York

76 Civ. 2375 (LFM)

76 Civ. 2554 (LFM)

76 Civ. 2571 (LFM)

76 Civ. 2594 (LFM)

Nationa Super Spvups, Inc., Wirtt1am R. Buster, Jr.,

Wriutarp C. Suiner, Evcene P. Weisman, Ricuarp

Wetts, Raymonp Roruserc, Artuur S. ArMstrona,

Tueopore Brinek, Capcatn Hotprnos, Inc., and Heiz

Rommincer, individually and on behalf of all persons

similarly situated,

Plaintiffs,

—against—

New York MercantILte Excnance; Crayton Broxerace Co.

oF St. Louis, Inc.; Hernotp Commopities, Ixc.; THom-

son & McKinnon Avcuinctoss Konumeyer Inc.;

PressNer Trapinc Corp.; Jack Ricwarp Simpiot; J.R.

Srmptot; J.R. Srmptot Co.; Smprot INpustries, INc.;

Peter J. Taccares; P.J. Taccares Co.; C.L. Orrter;

Smtac Farms; Kexneto Ramo; A & B Farms, Inc.;

Hvcuw V. Gienn; Gearneart Farmine, Inc. and Ep

McKay,

Defendants.

JA 79

76 Civ. 2648 (LFM)

Incomco,

Plaintiff,

—vs.—

New York MercantiLe ExcHanee,

Wayne County Propuce Co., and Harotp Cottins,

Defendants.

76 Civ. 4350 (LFM)

Nem Leist, Pamre Smita and Incomco,

Plaintiffs,

—against—

Joun Ricuarpv Srmptot, J. R. Stmuprot & Co., Simpior

Propucts Co., Inc., Stupiot Inpvustries, Inc., Smmtac

Farms, Inc., Peter J. Taccares, P. J. Taccares &

Co., Henry A. Potrax, Harvey B. Porta, Harvey B.

Pottak Company, GERALD RaFFertTy, PrREssNER TRADING

Corp., BENJAMIN PressNER, STEPHEN SUNDHEIMER, JULES

Norpuicut, Eperstern & Co., Inc., Cuartes Epetstern,

Rosert Epersters, Murer Eperstern, MererFrecp & Com-

PANY, Inc., Grusert MererFeLp, Davip MErERFELD, Ropert

Rearpon, F. J. Rearvon, Inc., Harotp Coiurys, Caspar

Mayerson, Lyxnewoop Exportinc Company, ALEX Srn-

cLarrR, Manninc Stoitier, Hornsiower, Weexs-Hemp-

HILL, Noyes, Crayton Broxerace Co., Inc., HErnoip

Commopittrs, Ixc., THomson & McKixnon Avcuty-

cLoss Konimeyer Inc., MFX Commonitirs, Inc., Don-

ALD Srtver, Duane Sovtu, Kenneth Ramo, A & B

JA 80

Farmino Inc., Hucn Guienn, Gearneart Farmrne, Inc.,

Epwarp McKay, New York Mercantite EXxcHance,

Ricuarp B. Levine, Howarp Gasier, ALFRED PENNISsI,

“Joun” Humpureys, Frank Fvutimer,

Defendants.

76 Civ. 3210 (LFM)

Howarp Berenson,

Plaintiff,

—against—

Jack Ricnarp Simptot; J.R. Stupor Co.; Stmprot Inpvs-

tries, Inc.; Simtac Farms; Peter J. Taccares; P.J.

Taccares Company; THe New York Mercantite Ex-

CHANGE; THomson & McKinnon Avcuincioss Kout-

MEYER Inc.; Hetnotp CommMonities, Inc.; Crayton

Broxerace Co. or St. Louis, Inc.; Pressner Trapino

Conp.,

Defendants.

Defendants, the New York Mercantile Exchange (the

“Exchange”), Richard Levine (“Levine”), Howard Gabler

(“Gabler”), Alfred Pennisi (“Pennisi”), Clayton Broker-

age Co. of St. Louis, Inc. (“Clayton”), Heinold Commodi-

ties, Inc. (“Heinold”) and Thompson & McKinnon Auchin-

closs Kohlmeyer, Inc. (“Thompson”), having moved under

Rule 12(c), Fed.R.Civ.P., for judgment on the pleadings,

or, in the alternative, under Rule 56(b), Fed.R.Civ.P., for

partial summary judgment, and an Opinion and Decision

dated May 29, 1979 having been duly rendered, and the

Court having expressly determined that there is no just

JA 81

reason for delay and having expressly directed the Clerk

of the Court to enter final judgment pursuant to Rule 54(b)

Fed.R.Civ.P., it is hereby

ApsvpceEp that the sixth claim of the first amended con-

solidated class action complaint in National Super Spuds,

Inc. v. New York Mercantile Exchange, 76 Civ. 2375, 76 Civ.

2554, 76 Civ. 2571, and 76 Civ. 2594 is dismissed as to the

Exchange; and it is further

Apsvupcep that the first and fourth claims of the com-

plaint in Incomco v. New York Mercantile Exchange, 76

Civ. 2648 are dismissed as to the Exchange; and it is

further

Apsvupcep that the fourth claim of the complaint in Leist

v. Simplot, 76 Civ. 4350 is dismissed as to the Exchange;

and it is further

Apsvupcep that the fourth claim of the complaint in Leist

v. Simplot, 76 Civ. 4350 is dismissed as to Levine, Gabler,

and Pennisi; and it is further

ApsvpceEp that the fourth claim of the first amended con-

solidated class action complaint in National Super Spuds,

Inc. v. New York Mercantile Exchange, 76 Civ. 2375, 76 Civ.

2554, 76 Civ. 2571 and 76 Civ. 2594; and the first claim of

the complaint in Leist v. Simplot, 76 Civ. 4350 are dismissed

as to Clayton; and it is further

Apsvupcep that the fourth claim of the first amended con-

solidated class action complaint in National Super Spuds,

Inc. v. New York Mercantile Exchange, 76 Civ. 2375, 76 Civ.

2554, 76 Civ. 2571 and 76 Civ. 2594; the first claim of the

complaint in Leist v. Simplot, 76 Civ. 4350; and the second

claim of the complaint in Berenson v. Simplot, 76 Civ. 3210,

JA 82

to the extent that it asserts a claim under the Commodity

Exchange Act, are dismissed as to Heinold and Thompson.

Dated: New York, New York

July 3, 1979

Lioyp F. MceManon

U.S.D.J.

JupoMEentT Entenrep: 7/6/79

Raymonp F. BurcHarpt

Clerk

JA 83

Opinion of the Court of Appeals

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

>

Nos. 402, 403, 404—September Term, 1979

(Argued January 16, 1980 Decided July 8, 1980)

Docket Nos. 79-7402, 79-7464, 79-7482

>

NEIL LEIST, PHILIP SMITI! and INCOMCO,

Plaintiffs-Appellants,

_—! —

JOHN RICHARD SIMPLOT, J.R. SimpLotT & Co., SIMPLOT

Propucts Co., INc., SIMPLOT INDUSTRIES, INC., SIMTAG

FARMS, INC., PETER J. TAGGARES, P. J. TAGGARES &

Co., HENRY A. POoLLACK, HARVEY B. POLLACK,

HARVEY B. POLLACK COMPANY, GERALD RAFFERTY,

PRESSNER TRADING CoRP., BENJAMIN PRESSNER,

STEPHEN SUNDHEIMER, JULES NORDLIGHT, EDELSTEIN

& Co., INcC., CHARLES EDELSTEIN, ROBERT EDELSTEIN,

MURIAL EDELSTEIN, MEIERFELD & COMPANY, INC.,

GILBERT MEIERFELD, DAVID MEIERFEI.D, ROBERT REAR.

DON, F.J. REARDON, INC., HAROLD COLLINS, CASPAR

MAYERSON, LYNNEWOOD EXPORTING COMPANY, ALEX

SINCLAIR, MANNING STOLLER, HORNBLOWER & WEEKS-

HEMPHILL, Noyes Inc., MFX Commoopitigs, INC.,

DONALD SILVER, DUANE SOUTH, KENNETH RAMM, A &

B FARMING INC., HUGH GLENN, GEARHEART FARMING,

Inc., EDWARD McKay, “JOHN” HUMPHREYS, FRANK

FULLMER,

Defendants,

JA 84

CLAYTON BROKERAGE Co. OF St. Lovts, INcC., HEINOLD

COMMODITIES, INC., THOMPSON & MCKINNON, AUCHIN.

CLOSS, KOHLMEYER, INC., NEW YORK MERCANTILE

EXCHANGE, RICHARD B. LEVINE, HOWARD GABLER,

ALFRED PENNISI,

Defendants-Appellees.

>

INCOMCO,

Plaintiff-Appellant,

—Vi.—

WaYNE COUNTY PRODUCE Co., and HAROLD COLLINS,

Defendants,

NEW YorRK MERCANTILE EXCHANGE,

De fendant-Appellee.

o>

NATIONAL SUPER Spups, INc., WILLIAM R. BUSTER, JR.,

WILLARD C. CHINER, EUGENE P. WEISMEN, RICHARD

WELTS, RAYMOND ROTHBERG, ARTHUR S. ARMSTRONG,

THEODORE BRINEK, CAPGAIN HOLDINGS, INC., and HEIZz

ROMMINGER, individually and on behalf of all persons

similarly situated,

Plaintiffs-Appellants,

—_—Vi—

NEW YORK MERCANTILE EXCHANGE, CLAYTON BROKERAGE

Co. oF St. Louis, INC., PRESSNER TRADING CORP.,

H018)

JA 85

JACK RICHARD SIMPLOT, J.R. SimpLot Co., SIMPLOT

INDUSTRIES, INC., PETER J. TAGGARES, P.J. TAGGARES

Co., C.L. OTTER, SIMTAG FARMS, KENNETH RAMM, A

& B Farms, INc., HUGH V. GLENN, GEARHEART

FARMING, INC. and Ep McKay,

Defendants,

HEINOLD COMMODITIES, INC., THOMPSON & MCKINNON,

AUCHINCLOSS, KOHLMEYER, INC.,

Defendants-Appellees.

Before:

FRIENDILY, MANSFIELD and KEARSE,

Circuit Judges.

————_---~<> —----—-

Appeal from an order of the District Court for the

Southern District of New York, Llovd F. MacMahon.

Judge, 470 F.Supp. 1256 (1979), granting partial

summary judgment to the New York Mercantile

Exchange and three futures commission merchants,

defendants in three consolidated actions wherein

plaintiffs claimed damages arising out of the default by

sellers of the May 1976 Maine potato futures contracts,

on the ground that there is no private cause of action

for damages under the Commodity Exchange Act, 7

U.S.C. §$§ 1-19.

Reversed.

>

[4019 ]

JA 86

LEONARD TOBOROFF, Esq., New York, N.Y.

(Robson & Toboroff, New York, N.Y.),

for Plaintiffs-Appellants Neil Leist,

Philip Smith and Incomco.

POMERANTZ, LEVY, HAUDEK & BLOCK, New

York, N.Y. and

HOLLINSHEAD and MENDELSON, Pittsburgh,

Pa., for Class Plaintiffs-Appellants.

WILLIAM E. HEGARTY, Esq., New York, N.Y.

(Cahill Gordon & Reindel, New York,

N.Y., Charles Platto, Esq. and Peter

Leight, Esq., Of Counsel) and

REIN, Mounp & Cotron, New York, N.Y.

(Maurice Mound, Esq., Of Counsel), for

Defendants-Appellees New York Mer-

cantile Exchange, Richard B. Levine,

Howard Gabler and Alfred Pennisi.

LAWRENCE H. HUNT, Esq., Chicago, IIl.

(Sidley & Austin, Chicago, Ill.) and

DEWEY, BALLANTINE, BUSHBY, PALMER &

Woop, New York, N.Y. for Defenaant-

Appellee Heinold Commodities, Inc.

W. STANLEY WALCH, Esq., St. Louis, Mis-

souri (Thompson & Mitchell, St. Louis,

Missouri, Gerard K. Sandweg, Esq. and

Kenton E. Knickmeyer, Esq., Of Coun-

sel) for Defendant-Appellee Clayton

Brokerage Co. of St. Louis, Inc.

HALL, MCNICHOL, HAMILTON, CLARK & MUR.

RAY, New York, N.Y. for Defendant-

Appellee Thomson McKinnon Auchin-

closs Kohlmeyer Inc.

[4020 J

JA 87

MarK D. YOUNG, Esq., Washington, D.C.

(John G. Gaine, General Counsel, Pat G.

Nicolette, Deputy General Counsel, and

Gregory C. Glynn, Associate General

Counsel, Washington, D.C., Of Counsel),

for Amicus Curiae Commodity Futures

Trading Commission.

—

FRIENDLY, Circuit Judge:

Plaintiffs in three consolidated actions in the District

Court for the Southern District of New York appeal

from an order of Judge, now Chief Judge, MacMahon,

470 F.Supp. 1256 (1979), granting appellees’ motions

for partial summary judgment. The court struck from

the complaints all claims based on the Commodity

Exchange Act, (CEA), 7 U.S.C. §§ 1-19, as amended in

1974, as distinguished from other claims under the

antitrust laws. The actions were to recover damages

allegedly suffered by the plaintiffs as a result of what

Judge MacMahon characterized as

the much publicized default in May 1976 of Maine

potato futures contracts, when the sellers of almost

1,000 contracts failed to deliver approximately

50,000,000 pounds of potatoes, resulting in the

largest default in the history of commodities

futures trading in this country. 470 F.Supp. at

1258 (footnote omitted).

The basis for the court’s order was that no private

cause of action exists for breach of the CEA. Since this

important issue has divided the district courts,

including those within our circuit, we feel constrained

[4021]

JA 88

to discuss it in some detail.' We think it desirable, as

did the district court, to begin with an explanation of

the nature of the commodity futures markets.

I. COMMODITY FUTURES MARKETS

A commodity futures contract is simply a bilateral

executory agreement for the purchase and sale of a

particular commodity. The seller of the contract

commits himself to deliver the commodity at a fixed

date in the future, while the buyer commits himself

then to accept delivery and pay the agreed price. 1

Bromberg & Lowenfels, Securities Fraud & Commodi-

ties Fraud § 4.6 (4211979); H. R. Rep. No. 93-975, 93d

Cong., 2d Sess. 130 (1974). Every aspect of the futures

contract is standardized except price. For example, the

contract involved in this case, the May 1976 Maine

potato futures contract, is for 50,000 pounds of Maine

grown potatoes of a specified quality to be delivered at

specified points in cars of the Bangor & Aroostook

Railroad, between May 7 and May 25, 1976. Since price

is the only variable, negotiations can readily proceed

and the agreed prices can be speedily disseminated to

1 The length of our treatment, particularly the explanation of the

nature of the Commodities Futures Market in Part I and the history

of congressional regulation in Part III, is also partly due to the fact

that when the case was argued and for some time after the majority

opinion was prepared, no court of appeals had passed on the question

and we anticipated being the first to do so. However, in a case

decided May 12, 1980, a divided panel of the Court of Appeals for

the Sixth Circuit reached the issue sua sponte and, in an excellent

and succinct opinion, held, as we do, on largely the same reasoning,

that there is an implied private right of action under the CEA.

Curran v. Merrill Lynch, Pierce, Fenner and Smith, Inc., No. 77-

1300, SRLR (BNA) G-1 (May 12, 1980). Although, as argued in the

dissent, Curran ‘nvolved a suit by a customer against a broker, the

court did not limit its reasoning to that situation.

[4022 ]

JA 89

(ther traders. Standardization alsu makes the contracts

fungible. Original sellers and buyers can therefore

otfset their positions by acquiring opposite contracts,

either paying or gaining any price differential. H. R.

Rep. No. 93-975, supra, at 130.

The person who has sold a futures contract, i.e.,

someone committed to deliver the commodity in the

future, is said to be in a “short” position. Conversely,

someone committed to accept delivery is “long”. It is a

rare case, however, in which actual delivery takes place

pursuant to a futures contract.? Save in these rare

instances, the short and the long must liquidate their

positions prior to the close of trading in the particular

futures contract. Although the means by which this is

done is routinely referred to as futures trading, futures

contracts are not “traded” in the normal sense of that

word. Rather they are formed and discharged. Clark,

Genealogy and Genetics of “Contract of Sale of a

Commodity for Future Delivery” in the Commodity

Exchange Act, 27 Emory L. J. 1175, 1176 (1978). A

person seeking to liquidate his futures position must

2 See H. R. Rep. No. 93-975, supra, at 129 (less than 3% of all

futures contracts culminate in delivery); T. Hieronymus, Economics

of Futures Trading 41 (1977) (less than 1%). Neither the speculative

investor nor the person using the futures market as a hedge for his

position in the market for the actual commodity generally desires

delivery. H. R. Rep. N.. 93-975, supra, at 129. See Volhart Brothers.

Inc. v. Freeman, 311 F.2d 52, 55-56 (5 Cir. 1962); Note, The

Delivery Requirement: An Illusory Bar to Regulation of Manipula.

tion in Commodity Exchanges 73 Yale L. J. 171, 173 (1963)

In occasional instances, however, people do use futures trading as

an alternative market for the physical commodity. H. R. Rep. No.

93-975, supra, at 132. Delivery is made through the clearing house

by transfer of warehouse receipts or rights to loaded freight cars and

then transported according to the purchaser's instructions. See

Cargill, Inc. v. Hardin, 452 F.2d 1154, 1157 (8 Cir. 1971), cert

denied, 406 U.S. 932 (1972).

[4023 ]

JA 90

form an opposite contract for the same quantity, so

that his obligations under the two contracts will offset

each other. Thus, a short who does not intend to deliver

the commodity must purchase an equal number of long

contracts; a long must sell an equal number of short

contracts. Money is made or lost in the price

differential between the original contract and the

offsetting transaction. If the price of the future has

declined, usually because of market information indi-

cating a drop in the price of the commodity, the short

will realize a profit; if the futures price has risen, the

long will realize a profit. See Cargill, Inc. v. Hardin,

452 F.2d 1154, 1157 (8 Cir. 1971), cert. denied, 406

U.S. 932 (1972). Futures trading is a zero-sum game.

Since money is made from the change in futures

contract prices, and every contract has a long and a

short, every gain can be matched with a corresponding

loss. See Melamed, The Mechanics of a Commodity

Futures Exchange: A Critique of Automation of the

Transaction Process, 6 Hofstra L. Rev. 149, 166 & n.39

(1977).

The mechanics of the commodity futures market, and

the roles of the various participants, can be illustrated

by tracing a typical transaction. An individual wishing

to invest in the futures market approaches a “futures

commission merchant” (FCM). FCM’s are defined in the

Commodity Exchange Act as individuals or associations

“engaged in soliciting or in accepting orders for the

purchase or sale of any commodity for future delivery

... On... any contract market... ,” § 2(aX1), 7

U.S.C. § 2, and they are registered with the Commodity

Futures Trading Commission (CFTC). The FCM will

demand a “margin” payment from the customer, which

is simply a security deposit designed to protect against

adverse price movements. The amount of the margin is

[4024 ]

JA 91

based upon the amount which the customer can lose in

a day or two; when th. margin is exhausted the FCM

will call the customer for additional payment. The

margin is generally only a small percentage of the value

of the contract. See Melamed, supra, 6 Hofstra L. Rev.

at 167 & n.41. FCM’s are paid a commission on their

customer’s business.

The FCM relays its customer’s order to one of its

“floor brokers” trading on the exchange. The broker

stands on the outside of a “pit” or “ring” around which

are gathered other persons trading in the same

contract. Some of the traders are brokers acting on

behalf of customers, while others trade on their own

account. Contracts are made by “open outcry”. The

broker with an order will indicate his position at the pit

by shouting and gesticulating with standardized hand

signals. Someone willing to enter the contract responds

across the pit in similar fashion, and the deal is made.

Observers on raised pulpits alongside the pit record the

transaction and feed the information into a communica-

tions system, publicizing it to other traders who, in any

event, had an opportunity to witness the transaction in

the pit. The broker relays the particulars of the deai to

the FCM, who informs the customer.

When two traders have reached an agreement on the

floor of the exchange, the role of the clearinghouse

comes into play. The clearinghouse, a key link in the

futures trading system, operates as the seller to all

buyers and tiie buyer from all sellers, thus facilitating

the interchangeubility of the contracts and the cancel-

ling of positions. H. R. Rep. No. 93-975, supra, at 149;

S. Rep. No. 93-1131, 93d Cong., 2d Sess. 17 (1974);

Cargill, Inc. v. Hardin, supra, 452 F.2d at 1156. Not all

FCM’s are clearinghouse members; those that are not

[4025]

JA 92

must deal through one that is. The clearinghouse treats

FCM’s as principals in trading transactions and

demands margin payments from them. The clearing-

house requires FCM’s to “mark to the market” at the

close of every trading day. Any net gain or loss which

the FCM has sustained in the course of the day’s

trading is computed and margin adjustments are made

accordingly. Melamed, supra, 6 Hofstra L. Rev. at 167-

68.

Generally speaking there are two classes of traders in

commodity futures contracts, although, as some of the

facts of the instant cases indicate, the distinctions

between them are often quite blurred. A “hedger” is a

trader with an interest in the cash market for the

commodity, who deals in futures contracts as a means

of transferring risks he faces in the cash market. See H.

R. Rep. No. 93-975, supra, at 131, 133, 162. See also

the complicated definition of “bona fide hedging

transactions and positions” promulgated by the CFTC,

17 C.F.R. § 1.3(z). The owner of a commodity can hedge

against declining prices by entering into equivalent

short futures contracts for the month when he expects

to be able to sell, and a processor (e.g., a miller) can

hedge against increasing prices by going long for the

month when he will need the commodity. Losses caused

by a decline in prices on the cash market in the former

case or an advance in the latter will be offset by profits

in the futures transactions. See generally H. R. Rep.

No. 93-975, supra, at 130-34; Cargill, Inc. v. Hardin,

supra, 452 F.2d at 1157-58; Note, supra, 73 Yale L. J.

at 171-73. The benefits of hedging extend beyond the

immediate participants in the transactions. “Because

hedging of price risks in a futures market enables a

merchant to reduce the exposures he has in doing

[4026 ]

JA 93

business, he is able to operate on 2 lower profit margin

with consequent lower prices to the consumer.” H. R.

Rep. No. 93-975, supra, at 132-33; see also S. Rep. No.

93-1131, supra, at 18; Valdez, Modernizing the

Regulation of the Commodity Futures Markets, 13

Marv. J. Legis. 35, 40 (1975).

The system would not function, however, if only

hedgers sold and purchased commodity futures con-

tracts.* While hedging performs an insurance function,

it is actually quite different from insurance. The risks

faced by those dealing in the “cash” market, the market

for the actual commodity, are not spread among those

similarly situated, as with insurance, but rather are

shifted to others. Bianco, The Mechanics of Futures

Trading: Speculation and Manipulation, 6 Hofstra L.

Rev. 27, 32 (1977); Cargill, Inc. v. Hardin, supra, 452

F.2d at 1158. The speculative investor, with no

underlying interest in the cash market, is essential to

take on the risks which the hedgers want to shift. The

critical role of the “speculator” was described at some

length in the House Report on the 1974 amendments:

The principal role of the speculator in the markets

is to take the risks that the hedger is unwilling to

accept. The opportunity for profit makes the

speculator willing to take those risks. The activity

of speculators is essential to the operation of a

futures market in that the composite bids and

3 Johnston, Understanding the Dynamics of Commodity Trading, 35

Bus. Law. 705. 709 (1980), states that “{aJs a general rule, for a

market to be broad enough to be efficient and to accomodate the

extremely large orders that come in from time to time from dealers

and commercial firms, 50 to 75 percent of the open interest and

volume of trading must come from speculators—this is essential for

there to be a viable market.”

[4027 ]

JA 94

offers of large numbers of individuals tend to

broaden a market, thus making possible the

execution with minimum price disturbance of the

larger trade hedging orders. By increasing the

number of bids and offers available at any given

price level, the speculator usually helps to minimize

price fluctuations rather than to intensify them.

Without the trading activity of the speculative

fraternity, the liquidity, so badly needed in futures

markets, simply would not exist. Trading volume

would be restricted materially since, without a host

of speculative orders in the trading ring, many

larger trade orders at limit prices would simply go

unfilled due to the floor broker’s inability to find

an equally large but opposing hedge order at the

same price to complete the match. H. R. Rep. No.

93-975, supra, at 138.

As commentators have noted, “Congress itself has

recognized that the investor—although he is commonly

referred to as a speculator in this context—is what

makes the commodity futures market work .

Bromberg & Lowenfels, supra, at § 4.6 (462).

Indeed, there is no bright-line difference between

hedgers and speculators. Hedgers frequently do not

merely balance their cash market risks in the futures

market but engage in some speculation as well, buying

or selling more or less futures contracts based on price

expectations. Note, Abuses in the Commodity Markets:

The Need for Change in the Regulatory Structure, 63

Geo. L. J. 751, 768-70 (1975); Valdez, supra, 13 Harv.

J. Legis. at 64-65. On the other hand, speculators can

become involved in the cash market as the activities of

the plaintiff Incomco will demonstrate.

[4028 ]

JA 95

I], THE ALLEGED FACTS AND THE PROCEEDINGS

BELOW

The facts alleged in the three complaints here before

us are broadly as follows:‘

John Richard Simplot is an Idaho potato entrepre-

neur who controls J. R. Simplot and Co., Simplot

Products Co., Inc., and Simplot Industries, Inc. These

corporations are responsible for the processing of

approximately 50% of all Idaho potato products

processed and sold in the United States. Peter J.

Taggares is a Washington potato entrepreneur. He and

his company, P. J. Taggares Co., process approximately

30% of all the Washington potatoes processed and sold

in this country. Simplot and Taggares are equal

partners in the ownership of Simtag Farms, a large

farm in the State of Washington for the growing and

warehousing of potatoes. Together Simplot, Taggares,

and the companies they control are the largest

purchasers of potatoes throughout the western potato

region of Washington, Idaho and Oregon.

According to the complaints, Simplot, Taggares, and

the companies controlled by them, together with

numerous co-conspirators, embarked in the spring of

1976 on a conspiracy to depress the price of the May

1976 Maine potato futures contract traded on the floor

of the New York Mercantile Exchange (the “short

conspiracy’). As stated by one of the complaints, “{bly

virtue of their position in the potato processing field

and the quantity of potatoes purchased by them, [the

4 We say here once and for all that our statement, in large measure,

is simply what the plaintiffs contend to be the facts and is not to be

read as one of facts found. Accordingly we will generally dispense

with use of words such as “allegedly”, “asserted” and “claimed”

[4029 ]

JA 96

conspirators} would be in a position to control the

prices paid for potatoes but for the existence of the

Exchange and the activity . . . in buying and selling

potato futures contracts.” Simplot had encountered

difficulties in the course of his customary negotiations

with the Idaho Potato Growers Association, because the

IPGA believed that the price of potatoes, including

Maine potatoes, would be much higher than what

Simplot was offering. Futures prices supported this

view. A report issued on April 13, 1976 by the United

States Department of Agriculture indicated that total

potato stocks were down 11%, and that Maine stocks

totalied only 7.4 million cwt. compared with 13.0

million cwt. on hand the previous year. An earlier

report issued in August 1975 estimated that national

potato acreage would be down 8% from the previous

year with an even greater drop in Maine. The effect of

this latter report, and other generally available

information, was to drive the price of the May 1976

Maine contract from $9.75 per cwt. to a record high or

$19.15 per cwt. by October 3, 1975. The activities of

the short conspirators were designed to counteract the

impact of these reports and other market information

and rumors tending to raise the price of Maine futures.

A decline in the price of potato futures would suggest

to those dealing in the cash market, such as the IPGA,

that supplies of Maine potatoes would be greater than

earlier anticipated, and that prices in spot transactions

or negotiations for all potatoes should correspondingly

recede.

The primary means by which the short conspirators

sought to depress the futures price was the accumula-

tion of a large net short position in the Mav contract.

The conspirators allegedly agreed to sell a large number

[4030 ]

JA 97

of contracts short and to refuse to liquidate these

shorts at a price higher than that agreed among

themselves and, if necessary, to default on the

obligation to make delivery on all unliquidated

contracts. Such short purchases would give the

impression of the existence of a large supply of

deliverable Maine potatoes and drive down the price of

the contract.

Simplot made $1 million available to Simtag Farms,

which Simtag used to open a credit balance on March

29, 1976, with Pressner Trading Corp., a member of

the New York Mercantile Exchange (the Exchange or

NYME), for the purpose of buying and maintaining

short positions in the May contract. At the same time,

Simplot, Taggares and their other companies also began

to accumulate a large number of short contracts. The

brokers through which the conspirators acquired their

positions included Clayton Brokerage Co. of St. Louis,

Inc. (Clayton), Heinold Commodities, Inc. (Heinold), and

Thompson & McKinnon, Auchincloss, Kohlmeyer, Inc.

(Thompson). These three brokerage firms were, like

Pressner Trading, clearing members of the Exchange

and appropriately registered with the CFTC. The firms

allegedly knew, or should have known, that their

customers neither intended to nor would be able to

cover the large number of short positions the brokers

acquired for them.

On May 4, 1976, Simplot and Taggares were warned

by the CFTC that it was aware of their large short

position and that price manipulation was a violation of

the Commodity Exchange Act. The telegram concluded

that although this “is not an allegation of price

manipulation, if prices of the May 1976 potato future

. . Should become artificial during liquidation due to

(4031]

JA 98

your action or inaction, we will consider whether you

and your firm should be charged with price manipula-

tion under the Commodity Exchange Act.” In the face

of this warning, and the impending close of trading on

May 7, the conspirators not only failed to take steps to

liquidate their large short position but actually

increased it, again with the help and support of the

named brokerage firms. On the last day of trading they

consolidated all the short positions they controlled in

the hands of Pressner. Clayton, Thompson and Heinold

knowingly acquiesced in this consolidation designed to

concentrate the force of the manipulation.

In addition to the accumulation of a large net short

position which they refused to liquidate at higher than

an agreed price, the conspirators also allegedly

manipulated the futures price by shipping large

quantities of unsold Idaho potatoes to the Maine

markets for immediate sale at the going price. The use

of such so-called “roller cars”, railroad cars of potatoes

shipped although there is no pre-determined buyer,

tends to depress the market price, and thus affect

futures prices.

Simplot and Taggares were not the only group

manipulating the price of the May future. A second

group of eastern conspirators thought they could beat

the western producers at their own game. Harold

Collins and Casper Mayrsohn are Maine potato

merchants and traders in Maine futures. MFX Com-

modities, Inc., with Donald Silver as its president, is a

foreign corporation engaged in business as a FCM. This

group learned of the conspiracy of Simplot and

Taggares and conspired to squeeze them. Pursuant to

this conspiracy (the “long conspiracy”), the “long” group

purchased as many contracts as it could, and then at

[4032]

JA 99

the same time maneuvered to tie up the cash potato

market so that the shorts could not make delivery. The

longs reasoned that if the shorts had no access to

deliverable potatoes, the longs would be able to dictate

the price the shorts would have to pay to liquidate their

contracts. The main way in which the longs tied up the

cash markets was by tying up all of the rail cars of the

Bangor & Aroostook Railroad, which alone could

deliver potatoes to satisfy May futures contracts. This

was done by using the cars for phony export shipments

and leaving them loaded or only partially unloaded

when they reached appropriate destinations.

Neither the longs nor the shorts would give in to the

other. The shorts refused to liquidate their position by

buying offsetting long contracts at higher than the

price agreed among them; the longs refused to come

down to the unreasonably low price demanded by the

shorts. At the end of trading on May 7, the short

conspirators controlled 1893 open short positions. The

long conspirators controlled 911 open long positions.

There are usually only approximately 200 open

contracts at the end of trading on the May potato

future.

The plaintiffs were caught in the middle between

these two competing conspiracies. Neil Leist is a duly

licensed member of the Exchange engaged in the

business of trading commodities and futures for his

own account. Incomco, a partnership, is a duly licensed

FCM. Philip Smith is Incomco’s managing partner. The

class action plaintiffs are traders and dealers represent-

ing all persons “who held a net long position in

Contracts and who liquidated their long position in said

contract between April 13, 1976 and the close of

trading on the Exchange on May 7, 1976.”

[ 4033 ]

JA 100

On the basis of the same sort of information which

motivated Simplot and Taggares to conspire to depress

the price of the contract, plaintiffs believed there was

an investment opportunity on the long side of the

contract. If there was going to be a shortage of

deliverable Maine round whites, those committed to

deliver potatoes at a set price might well find this price

to be under what the potatoes were worth. The shorts

would then have to sustain a loss, either by purchasing

potatoes in the cash market for the higher price and

delivering them for the lower futures contract price, or

by purchasing an offsetting long position. The price of

the long position should have gone up due to the

shortage, so that the shorts would lose the differential

in liquidating. The shorts’ loss would be the longs’ gain,

and it is this gain which the plaintiffs sought to realize

by their investment.

All the plaintiffs invested heavily on the long side of

the May contract. In addition, Incomco developed a

position in the cash market. It had accepted 1,500,000

pounds of Maine potatoes delivered to it pursuant to

the March futures contract, and planned to sell these

potatoes to those short the May contract who needed

supplies to satisfy their delivery obligations. Anticipat-

ing a cash market shortage, Incomco expected to sell its

potatoes at a handsome premium.

Because of the conspiracies, however, plaintiffs not

only did not realize the gains they claim they would

have had in an unmanipulated market but suffered

losses. The short conspirators continued to accumulate

short positions when they should have been trying to

liquidate by purchasing long contracts from plaintiffs,

and refused to liquidate above a set price. In the face of

the unnaturally falling price, the plaintiffs were forced

(4034 ]

JA 10]

out of the market at a loss. Because the long

conspirators had successfully tied up all the freight cars

of the Bangor & Aroostook, Incomco was unable to

deliver its warehoused potatoes to persons seeking

delivery to fulfill short contracts. As the warm weather

set in, the 1,500,000 pounds of potatoes became rotten,

and Incomco’s total investment was lost.

The Exchange allegedly figured in this debacle almost

from the start. In March, Richard Levine, president of

the Exchange, told plaintiff Leist that the Exchange

was investigating the large number of open positions in

the May contract. On April 28, two members of the

CFTC eastern region office, Howard Bodenhamer and

Marshall Horn, met with Levine and Howard Gabler,

vice-president of the Exchange, to express their concern

over the problems developing with the May csntract.

Levine recognized the problem and expressed the view

that Simplot might be trying to create difficulties in

the contract. A second meeting took place two days

later, at which Bodenhamer told Levine that the

Commissioners felt that “the Exchange should take

more action than less to bring about orderly liquida-

tions of the maturing futures.”

Levine did not report these meetings with the CFTC

to the Exchange’s Board of Governors until after the

close of trading on the May contract. Although the

Exchange knew, or should have known, of both the

short and the long conspiracies, it took no action to

prevent manipulation of the market. The Exchange

failed to declare an emergency situation pursuant to its

rules to facilitate orderly liquidation, and, once trading

had closed, failed to take appropriate steps such as

permitting delivery by truck or buying potatoes to

cover the default of the shorts.

{4035 ]

JA 102

The complaint in Leist v. Simplot was filed in the

District Court for the Southern District of New York on

September 30, 1976. Count I, directed against the short

conspirators and their brokers, charged that the

activities of the group constituted violations of 7 U.S.C.

§§ 1-13 and, more specifically, that the group used and

employed manipulative devices and contrivances in

violation of 7 U.S.C. § 13, which makes such action a

felony, and of rules promulgated by the CFTC. In

addition to naming the brokers as conspirators, Count |

specifically alleged that they “failed and neglected to

enter liquidating orders” for the short conspirators

prior to the close of trading “even though they knew

that such short positions could not be covered and that

there would be a default if the accounts were not closed

out”, permitted the short sales to be made and

cooperated in making such short sales “although they

knew or should have known that the sellers did not

intend to and would be unable to cover such short

positions.” Count II of the complaint charged various

violations of the Sherman Antitrust Act, 15 U.S.C.

§§ 1, 2, which are not subject to the present appeal.

Count III was directed against the long conspirators,

describing the facts outlined above and charging that

such conduct violated 7 U.S.C. §§ 1-13. Count IV was

directed against the Exchange and its officials. After

repeating the earlier general allegations against the

short conspirators, the complaint charged that these

defendants “negligently failed to maintain an orderly

market for trading in Maine Futures in violation of the

duties imposed upon them under the provisions of the

Act.” The Exchange was also charged with failing to

report the various violations alleged by the plaintiffs,

[4036 }

JA 103

and with failing to direct the entry of liquidating

orders for the account of members with net short

positions prior to the close of trading even though the

Exchange officials knew or should have known that the

sellers would not and could not make delivery if the

positions remained open.

‘he complaint in JIncomco v. New York Mercantile

Exchange was filed in the District Court for the

Southern District of New York on June 16, 1976. This

complaint was directed at the long conspirators and the

Exchange, “acting separately and also in concert with”

the long conspirators, for “blocking the availability of

railroad cars, thereby creating an artificial and

manipulative railroad car shortage” in violation of the

Commodity Exchange Act, and against the Exchange

for failing to follow its own regulations requiring it to

buy in the cash market for the account of delinquent

sellers so that outstanding obligations will be fulfilled.

As in Leist v. Simplot, plaintiffs also included an

antitrust charge.

The complaint in National Super Spuds v. New York

Mercantile Exchange was filed in the District Court for

the Southern District of New York on May 26, 1976.

After consolidation with other actions and amendment,

this class action complaint charged that the activities of

the short sellers described above “violated the applica-

ble provisions of the Commodity Act [and] acted as a

manipulative force which artificially lowered the price

of the Contract.” Count II charged the short sellers

with exceeding position and trading limits set by the

CFTC in 17 C.F.R. § 150.10. Count IV was directed

against the brokers for the short sellers, charging them

(4037 }

JA 104

with violating Exchange Rule §§ 44.02° by failing to

have liquidating orders placed although they knew or

should have known that their customers could not

deliver potatoes, permitting their customers to exceed

position and trading limits imposed by the Act, and

failing to report these and other violations of the Act,

regulations, and Exchange rules by their customers of

which they knew or should have known. Count V

generally charged that the brokers, “with knowledge of

intent of short Sellers to deflate the price of the

Contract acquiesced and/or participated in the acts of

Short Sellers.” Count VI was directed at the Exchange,

charging that it failed and neglected to report and

concealed violations of the Act, regulations, and its own

rules; failed and neglected to direct that liquidating

orders be entered with respect to members which the

Exchange knew or should have known would default;

generally failed and neglected to perform its duties as a

5 This reads as follows:

44.02-FINAL DAY OF TRADING

(a) On the final day of trading in the delivery month, it shall be

the responsibility of each clearinghouse member who is not in a

position to fulfill his contractual obligation on any maturing

contract by prescribed notice and tender, to have a liquidating

order entered on the Exchange floor not later than five minutes

before the time established as the official close for such delivery

month. All such orders shall be market orders to be executed

prior to the expiration of trading.

(b) On the final day of trading no stop orders will be accepted;

no time limit or contingent orders will be accepted, and brokers

will not be expected to assume responsibility for the execution of

orders placed later than 15 minutes prior to the close of trading.

(c) Cancellations that reach the trading floor after one half ('2)

hour prior to the time trading is scheduled to cease on the last

day of trading in an expiring future may involve extraordinary

problems and hence will be accepted solely at the risk of the

customer.

[4038 ]

JA 105

contract market; and failed and neglected to exercise

due care to halt manipulative practices. The three

actions, all claiming extensive compensatory and

punitive damages, were consolidated.

After answers had been filed and extensive discovery

had been had, one phase of which has occupied the

attention of this court, see National Super Spuds v.

New York Mercantile Exchange, 591 F.2d 174 (2 Cir.

1979), three brokers, Clayton, Heinold and Thompson,

and the Exchange and Exchange officials moved in the

different actions for judgment on the pleadings under

Fed. R. Civ. P. 12(c) or, in the alternative, for partial

summary judgment under Fed. R. Civ. P. 56(b). Since

he believed that all the parties had submitted factual

material outside the pleadings, the judge considered the

motions under Rule 56(b), although in fact the

dispositive reasons so far as concerned the claims under

the Commodity Exchange Act, which were all that were

raised by the Exchange, the Exchange officials and

Thompson, seem to have been wholly ones of law which

could have been raised as well when the complaints had

been filed two years earlier. In a thoughtful opinion

issued on May 29, 1979, 470 F.Supp. 1256, Judge

MacMahon held that there was no private right of

action for damages under the Commodity Exchange

Act, and granted summary judgment in favor of the

moving defendants on those counts seeking recovery

under that Act.* Partial final judgment was entered

under Fed. R. Civ. P. 54(b) in favor of the moving

defendants, and the plaintiffs took the instant appeal.

6 For a precise statement of the motions and their disposition, see

470 F.Supp. at 1257 n.1, 1263-64

[4039 ]

JA 106

III. THE HISTORY OF CONGRESSIONAL

REGULATION OF

COMMODITY FUTURES TRADING

Although our immediate concern is with the Com-

modity Exchange Act (CEA) as it now stands, it will be

useful at this point to review the long history of

Congressional regulation of commodity futures trading.

The first effort at such regulation was the Future

Trading Act, 42 Stat. 187 (1921). This established the

basic pattern of all regulation to follow, concentrating

trading on central exchanges subject to the supervision

and control of the federal government. The 1921 act

levied a tax on all grain futures contracts not traded on

a designated contract market. The Secretary of

Agriculture was authorized to designate a board of

trade as a “contract market” when the board, inter alia,

“provides for the prevention of manipulation of prices.”

§ 5(d), 42 Stat. 188. This provision has remained

virtually unchanged to the present day, and is one of

the provisions upon which plaintiffs seek to base a

private right of action against the Exchange. The act

also empowered a commission composed of the

Secretary of Agriculture, Secretary of Commerce, and

the Attorney General to suspend or revoke the

designation of any board of trade failing to comply with

the conditions of its designation, § 6(a), 42 Stat. 188,

and to preclude any person violating the act or

attempting to manipulate prices from trading on

designated contract markets, § 6(b), 42 Stat. 189.

Failure to pay the appropriate tax or keep required

records made the violator guilty of a misdemeanor with

a fine of up to $10,000 and/or imprisonment for up to

one year, § 10, 42 Stat. 191.

[4040]

JA 107

The Future Trading Act was declared to be an

unconstitutional exercise of the taxing power in Hill v.

Wallace, 259 U.S. 44 (1922). It was redrafted

immediately and enacted as the Grain Futures Act, 42

Stat. 998 (1922). The offending tax provision was

deleted, and Congress, relying now on the commerce

power, simply made it unla

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